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BUREAU OF MINES 
INFORMATION CIRCULAR/1988 




Phosphate Availability and Supply 
A Minerals Availability Appraisal 



UNITED STATES DEPARTMENT OF THE INTERIOR 



Information Circular 9187 



Phosphate Availability and Supply 

A Minerals Availability Appraisal 

By R.J. Fantel, R.J. Hurdelbrink, D.J. Shields, and R.L. Johnson 



UNITED STATES DEPARTMENT OF THE INTERIOR 
Donald Paul Hodel, Secretary 

BUREAU OF MINES 
T S Ary, Director 



As the Nation's principal conservation agency, the Department of the Interior has 
responsibility for most of our nationally owned public lands and natural resources. This 
includes fostering the wisest use of our land and water resources, protecting our fish 
and wildlife, preserving the environment and cultural values of our national parks and 
historical places, and providing for the enjoyment of life through outdoor recreation. 
The Department assesses our energy and mineral resources and works to assure that 
their development is in the best interests of all our people. The Department also has 
a major responsibility for American Indian reservation communities and for people who 
live in island territories under U.S. administration. 









Library of Congress Cataloging-in-Publication Data 



Phosphate availability and supply. 



(Information circular; 9187.) 

Bibliography: p. 35 

Supt. of Docs, no.: I 28.27:9187.) 

1. Phosphate rock. 2. Phosphoric acid. I. Fantel, R. J. (Richard J.) II. United States. Bureau 
of Mines. III. Series: Information circular (United States. Bureau of Mines); 9187. 



-TN295.U4 [TN913] 



622 s 



[333.8'5] 



87-600363 



For sale by the Superintendent of Documents, U.S. Government Printing Office 
Washington, DC 20402 



Ill 



PREFACE 



The Bureau of Mines, the principal Government agency conducting minerals-related 
analysis, is charged with assessing the worldwide availability of nonfuel minerals. In 
so doing, the Bureau identifies, collects, compiles, and evaluates information on active 
and developing mines, explored deposits, and mineral processing plants worldwide. With 
this information, the Bureau constructs mathematical mineral models, which it uses 
to analyze world mineral policy and perform market studies. Objectives are to classify 
domestic and foreign resources; to identify, by cost evaluation, resources that are 
reserves; and to prepare analyses of mineral availabilities. 

This series of Minerals Availability reports analyzes the availability and supply 
of minerals from domestic and foreign sources and the factors that affect availability 
and supply. Analyses of other minerals are in progress. Questions about the Minerals 
Availability Program should be addressed to Chief, Branch of Minerals Availability, 
Bureau of Mines, 2401 E Street, NW., Washington, DC 20241. 



CONTENTS 



Page 

Preface iii 

Abstract 1 

Introduction 2 

Acknowledgments 2 

World phosphate industry 3 

Production 3 

Consumption 5 

Trade 6 

Methodologies and cost data 8 

Methodologies 8 

Cost estimation and data development 8 

Availability estimation 9 

Market balance model 9 

Network flow model 10 

Cost data 10 

Capital costs 11 

Production costs 11 

Transportation costs 13 

Acidulation costs 14 

Phosphate evaluation results 15 

Availability 15 

Total 15 

Annual 15 

Supply 20 



Page 

Current market analysis 20 

Historical period simulation results 21 

Current trade patterns and delivered costs . . 24 

Natural markets 25 

Supply curves 25 

World phosphate rock supply 25 

Regional phosphoric acid supply 25 

Projection period analyses 26 

Base case analysis to the year 2000 26 

Competitive position of potential 

suppliers in 1995 29 

Alternative scenarios 30 

Alternative demand projections 31 

Disruption analyses 31 

Conclusions 33 

References 35 

Appendix A.— World mine and deposit status 

and information 36 

Appendix B.— Acid and fertilizer plants 

included in network 44 

Appendix C— Phosphate geology, resources, mining, 

and processing 46 

Appendix D.— Availability methodology 50 

Appendix E.— Supply modeling methodologies .... 53 



ILLUSTRATIONS 



1. World phosphate rock production, by region, 1985 3 

2. World phosphate rock production shares for selected years 4 

3. Consumption of phosphate fertilizers, by region, 1985 5 

4. Principal exporters of phosphate rock, 1985 6 

5. Principal exporters of phosphate fertilizer products, 1984 7 

6. Principal MEC exporters of phosphate rock and processed phosphate, 1984 8 

7. Cumulative capacity of MEC producers, with average production cost by quartile, 1985 10 

8. Phosphate rock production costs for surface mines in selected regions 11 

9. MEC phosphate production costs, labor component, 1985 13 

10. MEC phosphate production costs, energy component, 1985 13 

11. MEC phosphate production costs, intracountry transportation component, 1985 13 

12. Phosphoric acid production capacity and average cost, by region 14 

13. Phosphate rock potentially recoverable from MEC mines and deposits (15-pct DCFROR) 16 

14. Phosphate rock potentially recoverable from MEC producing mines and nonproducing deposits (15-pct DCFROR) 17 

15. Total MEC phosphate rock availability at 0- and 15-pct DCFROR 17 

16. Potential annual production from MEC producing mines at various cost levels (15-pct DCFROR) 18 

17. Potential annual production from MEC developing mines and explored deposits at various 

cost levels (15-pct DCFROR) 18 

18. Supply and demand incorporating social benefits 22 

19. Delivered cost of phosphoric acid to selected regions, 1984 24 

20. World phosphate rock supply, 1985 25 

21. Short-run supply of phosphoric acid, United States, 1984 26 

22. Short-run supply of phosphoric acid, Western Europe, 1984 26 

23. Short-run supply of phosphoric acid, Asia, 1984 26 

24. Estimated capital expenditures for new production capacity (1985-2000) 28 

25. Estimated average costs of marginal producing properties worldwide (1985-2000) 29 

26. Delivered cost of phosphoric acid to selected regions, 1995 30 

27. Estimated average variable cost of marginal supplier if normal supply disrupted 31 

C-l. Demonstrated phosphate rock resources, by region, January 1985 47 

D-l. Flow chart of evaluation procedure 51 

D-2. Mineral resource classification categories 51 

E-l. Prototype of world phosphate balance model 54 

E-2. Truncated marginal and average variable cost curves 55 

E-3. Typical market balance model MEC supply curve 55 

E-4. Sample network schematic 62 



VI 



CONTENTS — Continued 

Page 

TABLES 

1. World production of phosphate rock by region and country for selected years 4 

2. Consumption of phosphate, fertilizer, for selected years 5 

3. Consumption of phosphate, nonfertilizer, for selected years 5 

4. International trade in phosphate rock, 1983-85 6 

5. Processed phosphate exports, 1984 7 

6. Average capital costs to develop nonproducing surface phosphate mines in selected countries 11 

7. Phosphate rock production costs for selected mines and deposits 12 

8. Estimated potential annual production capacities for currently producing MEC mines, by country 19 

9. Estimated potential annual production capacities for nonproducing deposits at average total production 

costs less than $100 per metric ton phosphate rock, by country, year N+10 20 

10. Estimated and reported MEC production, 1981-85 21 

11. Annual average price of phosphate rock, 1981-85 22 

12. Estimated MEC phosphate rock production in selected regions, 1984 22 

13. Estimated marginal costs of delivered phosphoric acid, by region, 1984 24 

14. Adequacy of supply from current producers 26 

15. Simulated changes in MEC phosphate rock production capacity (1986-2000) 27 

16. Estimated production in selected MEC's in 1995 29 

17. Estimated marginal costs of delivered phosphoric acid, by region, 1984 and 1995 30 

18. Adequacy of supply from current producers at alternative demand levels 31 

A-l. World phosphate properties included in study 37 

C-l. Summary of world demonstrated phosphate resources as of January 1985 46 

C-2. Phosphate mill plant operating parameters, by region 48 

D-l. Assumed destinations for phosphate rock, by country 50 

El. Node process and product identifiers 63 

E-2. Demand values used in the historical period network flow model simulation 65 

E-3. Arc bound criteria 66 



UNIT OF MEASURE ABBREVIATIONS USED IN THIS REPORT 



h 


hour 


km 


kilometer 


lb 


pound 


m 


meter 


m 3 


cubic meter 


mt 


metric ton 



mt/yr 


metric ton per year 


pet 


percent 


pct/yr 


percent per year 


$/mt 


U.S. dollar per metric ton 


wt pet 


weight percent 


yr 


year 



PHOSPHATE AVAILABILITY AND SUPPLY 
A Minerals Availability Appraisal 

By R.J. Fantel, 1 R.J. Hurdelbrink, 2 D.J. Shields, 2 and R.L. Johnson 3 

ABSTRACT 

The Bureau of Mines investigated the resources, costs, capacities, market relation- 
ships, and short- and long-run supply of phosphate rock and phosphoric acid. The 206 
mines and deposits evaluated in 30 market economy countries contain an estimated 
35.1 billion mt of recoverable phosphate rock (demonstrated resource level). 

U.S. resources are sufficient to satisfy the domestic and export markets for phosphate 
products well beyond the year 2000. Because of resource depletion at current producers, 
however, new properties (with higher cost levels) need to be developed if U.S. produc- 
tion levels are to be maintained. 

Existing worldwide capacity can satisfy expected demand through the early 1990's. 
Expansion at existing mines or low demand growth could mean that no new property 
development will be needed before the late 1990's. Worldwide, almost $8 billion could 
be required for development of new phosphate rock properties between now and the 
year 2000, given 3-pct annual growth in demand. Most properties that could develop 
in the 1990's would require price increases of 20 to 50 pet to break even. To earn a 
15-pct rate of return on investment, prices must rise to nearly double the present level 
of $24 to $29 per metric ton. 



'Geologist. 
2 Economist. 

'Operations research analyst. 
Minerals Availability Field Office, Bureau of Mines, Denver, CO. 



INTRODUCTION 



The United States has for many years been the world's 
largest producer and net exporter of phosphate-related prod- 
ucts. U.S. producers are currently facing increased foreign 
competition for export markets; meeting foreign competi- 
tion in future years may be even more problematic. This 
study was undertaken to assess the worldwide availability 
and supply of phosphate rock, recognizing the critical im- 
portance of phosphorus to maintain and enhance agricul- 
tural production. The cost of producing phosphate rock in 
the United States is compared with costs in other phosphate- 
producing nations, and conclusions are drawn about the 
future competitiveness of phosphate rock from various 
sources. 

The Bureau of Mines, in its Minerals Availability Pro- 
gram (MAP), has established its expertise in the areas of 
minerals engineering, cost estimation, and mineral 
economics. The series of Information Circulars (IC's) on 
minerals availability has made many of the results of MAP 
work available to the general public. The data are now be- 
ing used in computerized engineering-based supply models. 
These models are analytic tools that put the deposit data 
on costs, capacities, and resources into a market context, 
making a wide range of analysis possible. For example, the 
current competitive position of alternative suppliers to each 
of the consuming regions can be examined, the impacts of 
changing economic or engineering parameters can be 
estimated, resource depletion can be monitored at a pace 
determined by probable demand levels and growth rates, 
and the timing of new capacity requirements can be 
highlighted. Cost comparisons between different potential 
new supply sources can indicate which are more likely to 
be developed first and how difficult it will be for the United 
States to maintain market share. 

The "Availability" section of this report provides a sum- 
mary description of the worldwide deposit-by -deposit data 
developed for the study. Resource estimates for all major 
market economy country 4 (MEC) mines and deposits have 
been established, along with current or proposed produc- 
tion capacities. Production costs and required capital ex- 
penditures have also been estimated for each mine or 
deposit. All of this information is presented in a series of 
tables, graphics, and availability curves. 

The "Supply" section of the report provides an analysis 
of the phosphate market based on two phosphate supply 
models that place the deposit data within a market context. 



These are referred to as the "market balance" and "net- 
work flow" models. Production levels in these models are 
estimated for each deposit, based on least cost criteria. Total 
production from all deposits is limited each year to the 
estimated amount of total annual consumption. The pace 
of resource depletion is dependent on the production level 
estimates, and new deposits are developed in a timely 
fashion to maintain a balance of production capability with 
demand. In the network flow model, the additional costs 
(and constraints) of intermediate processing and transpor- 
tation to a final market are accounted for also. 

This report is divided into three major sections and a 
number of appendixes. The first section is a summary 
description of the phosphate industry worldwide, which 
brings together information from other sources (primarily 
Bureau publications) to provide a setting for later analyses. 
In the second major section, study methodologies are 
described, and deposit costs and phosphate rock availability 
are discussed in an abbreviated update of a previous 
availability report (i). 5 In the third section, the results of 
a set of forecasting and policy analysis model runs are 
presented, giving estimated phosphate availability and 
supply through the year 2000. 

The appendixes provide additional information on the 
phosphate industry and the analytical methodologies 
employed in the study. Descriptive information on all the 
mines and deposits comprising the data base is presented 
in appendix A. The phosphoric acid plants are listed in ap- 
pendix B, and the geology, mining, and processing of 
phosphate are discussed in appendix C, along with a sum- 
mary of world phosphate rock resources. The availability 
methodology is summarized in appendix D, and an exten- 
sive description of the supply modeling methodologies is 
given in appendix E. 

Data for the foreign mines and deposits in the evalua- 
tion were originally provided by Zellars- Williams, Inc., 
under Bureau of Mines contract J0100122. New informa- 
tion collected since the previous Bureau IC on world 
phosphate (i) came from a variety of published sources and 
personal contacts, as well as a British Sulphur Corp. Ltd. 
consultancy study on Moroccan phosphate deposits (2). New 
data for mines and deposits in the Southeast and Western 
United States were developed by the Bureau's Intermoun- 
tain Field Operations Center in Denver, CO, and Western 
Field Operations Center in Spokane, WA. 



ACKNOWLEDGMENTS 



The authors wish to thank William F. Stowasser, 
phosphate commodity specialist, Division of Industrial 



4 MEC's are defined by the Bureau as all countries that are not centrally 
planned economy countries (CPEC's). CPEC's comprise the following: 
Albania German Democratic Republic Mongolia 

Bulgaria Hungary Poland 

China Kampuchea Romania 

Cuba Korea, North U.S.S.R 

Czechoslovakia Laos Vietnam 



Minerals, Bureau of Mines, for his assistance in all phases 
of the work; William Mo, economist, Division of Minerals 
Policy Analysis, Bureau of Mines, for his work in develop- 
ing econometric demand equations included in the market 
models; and Randy Glover, consultant, Management 
Sciences Systems Software, for his work in adapting the 
generalized network flow model. 



5 Italicized numbers in parentheses refer to items in the list of references 
preceding the appendixes. 



WORLD PHOSPHATE INDUSTRY 



Phosphate rock, the only significant commercial source 
of the element phosphorus, is of vital importance to an ex- 
panding agricultural sector worldwide. Phosphorus, 
nitrogen, and potassium are the three primary nutrients 
necessary for plant growth. When these elements are either 
lacking or depleted from the soil, they must be added to 
reestablish high agricultural yields. Growth of world 
agricultural production partially depends on the availability 
of phosphate fertilizers. The use of phosphate in fertilizers 
accounts for 85 to 90 pet of annual phosphate consumption 
worldwide (3), and therefore, the amount of phosphate rock 
required in the future will depend primarily on demand 
from the agricultural sector of the world's economies. 

Phosphate rock consists of the calcium phosphate 
mineral apatite, with quartz, calcite, dolomite, clay, and 
iron oxide as the gangue constituents. Following industry 
practice, the term "phosphate rock" is defined in this report 
as the mined or mined and beneficiated product of 
phosphate ore rather than the in situ material. After 
beneficiation, phosphate rock ranges from 26 to 39 pet P 2 5 
(phosphorus pentoxide). Phosphate rock can be converted 
to phosphoric acid by the wet process or to elemental 
phosphorus in an electric furnace, or can be applied direct- 
ly to acidic soils. 

Most of the phosphate rock produced in the world is used 
to manufacture wet-process phosphoric acid. Phosphoric acid 
is produced by digesting the apatite mineral, i.e., phosphate 
rock, in sulfuric acid. Diammonium phosphate (DAP), a com- 
mon bulk blending-grade fertilizer chemical, is produced 
by reacting phosphoric acid with ammonia. If the phosphate 
rock is reacted with phosphoric acid, triple superphosphate 
(TSP) is produced. When wet-process phosphoric acid is sub- 
jected to evaporation, a higher concentration of phosphoric 
acid is produced, and when this is reacted with ammonia, 
a liquid ammonium phosphate fertilizer is produced (4). 

A principal nonfertilizer product is phosphate animal 
feed supplements, produced by the defluorinization of either 
phosphate rock or phosphoric acid. Phosphate animal feeds 
are necessary supplements to assure the nutritional quali- 
ty of livestock diets (4). 

Industrial products (primarily produced from elemen- 
tal phosphorus) are the second major category of nonfer- 
tilizer use. Elemental phosphorus is produced by reducing 
phosphate rock in electric furnaces and is marketed as is 
or oxidized to produce anhydrous derivatives and phosphoric 
acid. Phosphoric acid produced from elemental phosphorus 
is principally used to produce sodium tripolyphosphate, a 
detergent builder. 

In combination, the total nonfertilizer uses of phosphate 
rock account for less than 15 pet of worldwide consumption. 
In addition, areas such as Brazil and Eastern Europe that 
have acidic soils can utilize ground phosphate rock for direct 
application to make limited improvements in soil 
productivity. 

PRODUCTION 

Phosphate rock was produced in over 30 countries dur- 
ing 1985 (table 1 and figure 1). The three main producers, 
the United States, the U.S.S.R., and Morocco, produced 104 
million mt, which was 69 pet of the approximately 151 



South America 
3 pet 



North Africa, 
17 pet 



North America. 
34 pet 




Other Africa. 4 pet 



e Ease, 9 pet 

Oceania and 
Far East. 2 pet 



Europe and Asia. 
1 pet 



CPEC's. 30 pet 



TOTAL PRODUCTION, 151.36 x 10 mt 

FIGURE 1. — World phosphate rock production, by region, 
1985. 

million mt produced worldwide. The world production for 
1985 was 6 pet higher than for 1981, 80 pet higher than 
1971, and more than three times higher than production 
in 1961. 

Production from MEC's was over 106 million mt dur- 
ing 1985, 70 pet of world production. During 1961 and 1971, 
MEC production was approximately 78 and 74 pet of total 
world production, respectively. These figures show a con- 
tinued decline in the share of world production from MEC's. 
Figure 2 illustrates the share of world phosphate rock pro- 
duction from the three major producing nations for the years 
1961, 1971, 1981, and 1985. 

Phosphate production from North America, primarily 
the United States, was about 51 million mt in 1985, more 
than 48 pet of total MEC production. During 1961, North 
America produced about 54 pet of the MEC total and dur- 
ing 1971, over 57 pet. Production from South America was 
about 4 million mt during 1985, less than 4 pet of total MEC 
production. 

Phosphate rock production from north Africa, over 
three-fourths of which was from Morocco, was 26.5 million 
mt during 1985. This was over 25 pet of MEC production, 
nearly the same percentage as in 1971. The north African 
share in 1961 was almost 30 pet. Other African countries 
produced nearly 7 million mt during 1985, 6.5 pet of MEC 
output. They produced nearly the same percentage of the 
total in 1971, but less than 3 pet of the total in 1961. 

Phosphate rock production from countries in the Mid- 
dle East area, which includes Egypt, Iraq, Israel, Jordan, 
Syria, and Turkey, was nearly 14 million mt during 1985. 
This was 13 pet of MEC production, more than triple the 
percentage of 1961 and 1971. 

Phosphate rock produced in Oceania during 1985 was 
nearly 3 million mt, more than 2 pet of MEC production. 
The share of phosphate rock production from this area has 
declined from almost 6 pet during 1971 and almost 8 pet 
during 1961. 

Phosphate rock production from CPEC's was 45 million 
mt during 1985. This was about 30 pet of total world pro- 
duction, up from 26 pet during 1971 and 22 pet during 1961. 
The U.S.S.R. produced about 32 million mt during 1985, 
72 pet of CPEC production, and China produced about 12 
million mt, 27 pet of the CPEC total. 



Table 1 . — World production of phosphate rock by region and country for selected years 1 

(Thousand metric tons of product) 



Region and country 2 



1961 1971 1981 1985 



Region and country 2 



1961 



1971 



1981 1985 



MEC's: 
North America: 

Mexico 

Netherlands Antilles (Curacao) 

United Staes 

Total 



29 58 252 350 

143 156 

18,856 35,270 53,624 50,835 

19,029 35,484 53,876 51,185 



South America: 

Brazil 

Chile 

Colombia . . . 

Peru 

Venezuela . . 
Total 



659 

14 









200 



10 



25 



3,238 

98 

17 







4,214 



23 

12 





674 



235 3,353 4,249 



North Africa: 

Algeria 

Morocco and Western Sahara . 

Tunisia 

Total 



440 495 916 1,207 

7,949 12,006 18,562 20,737 

1,981 3,161 4,596 4,530 

10,370 15,662 24,074 26,474 



Other African Countries: 

Senegal 

South Africa, Republic of. 

Tanzania 

Togo 

Uganda 

Zimbabwe 

Total 



547 

297 



118 







1,545 

1,233 



1,715 

16 

105 



1,699 
2,718 


2,215 


125 



1,702 

2,421 

15 

2,452 



131 



961 4,614 6,757 6,721 



Middle East: 
Egypt .... 

Iraq 

Israel .... 
Jordan . . . 
Syria .... 
Turkey . . . 
Total . . 



627 



226 

423 







713 



765 

569 

6 





720 

50 

1,919 

4,244 

1,321 

43 



1,074 
1,000 
4,076 
6,067 
1,270 
37 



1,275 2,053 8,297 13,524 



MEC's — Continued 
Oceania and Far East: 

Australia 

Christmas Island 3 

Indonesia 

Kiribati (Banaba Island, formerly 

Ocean Island) 

Makatea Island (French Oceania) 

Nauru 

Philippines 

Total 



5 

705 

10 



6 

990 





343 619 

381 

1 ,303 1 ,867 

5 



22 

1,423 
8 





1,480 

8 



Europe: 

Belgium 

Finland 

France 

Germany, Federal Republic of 

Sweden 5 

Total 

Asia: 

India 

Sri Lanka 

Thailand 

Total 



14 


81 









19 

60 







201 





124 



34 

1,200 

3 





1,508 

( 4 ) 



2,747 3,487 2,941 2,745 





510 





187 



Total MEC's. 



95 


79 


325 


697 


20 




243 




562 

15 

6 


748 

17 

3 


20 


243 


583 


768 


35,172 


61,856 


100,206 


106,363 



CPEC's: 

China 6 

Korea, North 6 

Poland 

U.S.S.R. e . . . 
Vietnam 6 



Total CPEC's . 
Total world . 



508 2,177 11,500 12,000 

152 272 500 500 

47 

8,799 19,002 30,700 32,200 

622 553 181 300 

10,127 22,004 42,881 45,000 

45,299 83,860 143,087 151,363 



Estimated. 

1 Purely guano or basic slag deposits not included. 

2 Some countries' production is listed as zero although small quantities were produced (e.g., Belgium and Uganda), and some countries are not listed because 
only small quantities were produced. 
Australian territory. 

"Not available in 1985. Minor quantities reported produced in 1984. 
5 Swedish material is byproduct apatite concentrate derived from iron ore. 

NOTE.— Data may not add to totals shown because of independent rounding. 

Sources: British Sulphur Corp. Ltd. (2); BuMines Minerals Yearbooks 1963, 1973, 1984, and 1985 (5-8), chapter on Phosphate Rock. 



United States 
42 pet 




Morocco 
I8pct 



Other 
2 1 pet 



U.S. 
1 9 pet 

I96I TOTAL PRODUCTION, 45.299 x I0 6 mt 



United States 
42 pet 



Morocco 
14 pet 




I97I TOTAL PRODUCTION, 83.860 x I0 6 mt 



United States 
37 pet 




Other 
29 pet 



United States 
34 pet 



U.S.S.R. 
2 1 pet 




I98I TOTAL PRODUCTION, I43.087x I0 6 mt I985 TOTAL PRODUCTION, I5I.363 x I0 6 mt 

FIGURE 2. — World phosphate rock production shares for selected years. 



CONSUMPTION 

Consumption of phosphate can be broadly classified into 
fertilizer and nonfertilizer uses. By far the most important 
use is for a wide variety of fertilizer products. Historically, 
90 to 95 pet of phosphate use is in this form. 

Fertilizer consumption levels for selected years between 
1965 and 1985 are shown in table 2 and figure 3. Over that 
period there was a moderate growth of consumption in the 
United States and Western Europe and more substantial 
growth in all other regions. The U.S. phosphate fertilizer 
consumption level grew from 3.3 million mt (contained P 2 5 ) 
in 1965 to a peak of 4.9 million mt in 1980 but was at lower 
levels afterward. The regions with the highest absolute 
growth since 1965 were Oceania and Asia, whose usage 
went from 3.0 million mt in 1965 to 9.7 million mt in 1985. 
Other regions with very high growth rates include Latin 
America, Africa, and the U.S.S.R., all of whom consumed 
more than four times as much phosphate fertilizer in 1985 
as they did in 1965. 

Table 2.— Consumption of phosphate, fertilizer, for 
selected years 

(Thousand metric tons of P2O5) 

Consuming region 1965 1970 1975 1980 1985 

North America: 

United States 3,348 4,251 4,418 4,928 4,270 

Canada 300 305 502 630 530 

Latin America 446 843 1 ,677 2,607 2,480 

Africa 342 526 794 1,017 1,500 

Oceania and Asia 3,011 3,984 5,010 7,655 9,700 

Western Europe 4,353 5,336 5,002 5,652 6,200 

Eastern Europe 1,386 2,189 2,990 3,280 3,300 

U.S.S.R 1,394 2,063 4,444 5,535 7,200 

Total 14,580 19,497 24,837 31,304 35,180 

Sources: 1965-80 values, FAO Annual Fertilizer Review (9); 1985 values, 
Zellars-Williams, Inc. (3). 



Oceania and Asia. 
28 pet 



North America. 
14 pet 




Western Europe. 
IB pet 



U.S.S.R 



Eastern Europe. 
9 pet 



TOTAL CONSUMPTION. 35.18 X 10 6 mt R, C 

2 b 

FIGURE 3. — Consumption of phosphate fertilizers, by region, 
1985. 

Projections of future fertilizer consumption levels are 
required for the market models used for analyses later in 



this report. These projections are based on extrapolation of 
past trends using statistically estimated functions that can 
depend on world economic activity levels. The amount of 
phosphate rock required in the future to satisfy estimated 
demand will depend on the form of that demand and the 
extent of phosphate losses incurred in processing and han- 
dling. Losses can be very low for material applied directly 
to the soil but can get higher when phosphate rock is 
processed into complex fertilizer chemicals. The amount of 
processing losses depends on the technology used to convert 
the material into fertilizer and the efficiency of transpor- 
tation and handling. The choice of technology can depend 
on the nature of the phosphate ore, the needs of the con- 
suming region's soil, the availability of other inputs to the 
processes that result in fertilizer products, and other 
considerations (10). 

Nonfertilizer uses of phosphate are grouped into two ma- 
jor categories: animal feed supplements and industrial uses 
(i.e., uses of primarily elemental phosphorus and its 
derivatives). Consumption levels in recent years for both 
categories are shown in table 3. 

Table 3.— Consumption of phosphate, nonfertilizer, for 
selected years 

(Thousand metric tons of P 2 5 ) 



1980 



1985 



528 


550 


63 


60 


28 


46 


40 


45 


2 


2 


199 


252 


453 


470 


156 


170 


432 


650 



1,901 



2,245 



Consuming region 1970 1975 

ANIMAL FEED SUPPLEMENTS 

North America: 

United States 496 387 

Canada 30 42 

Latin America 4 8 

Africa 26 35 

Oceania 

Asia 81 128 

Western Europe 268 332 

Eastern Europe 56 104 

U.S.S.R 51 346 

Total 1,012 1,382 

INDUSTRIAL USES 

North America: 

United States 886 694 

Canada 35 42 

Latin America 75 138 

Africa 23 34 

Oceania 12 16 

Asia 121 165 

Western Europe 537 655 

Eastern Europe 58 109 

U.S.S.R 51 82 

Total 1,798 1,935 

Source: Zellars-Williams, Inc. (3). 



Use of phosphates in mineral food supplements is more 
concentrated in areas of the world where livestock manage- 
ment is practiced, with poultry, swine, and dairy and feed 
cattle all using large amounts of inorganic phosphates to 
maintain a balanced diet. Principal examples of industrial 
uses include detergent builders, cleaners, and water treat- 
ment. Other industrial uses, although not major in terms 
of volume, include some of the highest valued and most 
specialized of all phosphate applications. Examples include 
leavening agents, plastic stabilizers, medicines, human food 
supplements, toothpaste, coffee creamers, rubber produc- 
tion, and inhibitor systems for antifreeze. 



676 


660 


52 


50 


189 


243 


50 


75 


19 


21 


234 


353 


731 


745 


145 


160 


108 


150 



2,204 



2,457 



Table 4.— International trade in phosphate rock, 1983-85 

(Thousand metric tons of product) 



Exporting source and 
destination of exports 



1983 



1984 



1985 



Exporting source and 
destination of exports 



1983 



1984 



1985 



Algeria and Tunisia: 

Asia 

Eastern Europe . 
Western Europe . 

Other 

Total 



20 

846 

722 





1,588 



Total 14,427 



Oceania and Far East: 

Australia 1 ,687 

Indonesia, Republic of Korea, 
Malaysia, China, Singapore, and 

Japan 116 

New Zealand 756 

Total 2,559 



256 

869 

558 

50 



1,733 



14,976 



1,419 



414 
759 



2,592 



217 
890 
633 
210 



1,950 



Israel and Jordan: 

Asia 1,694 2,718 3,095 

Eastern Europe 1 ,454 1 ,766 1 ,671 

Oceania 80 113 67 

Western Europe 2,148 2,141 2,071 

Other 19 

Total 5,376 6,738 6,923 



Morocco: 

Asia 1,385 1,546 1,612 

Canada 22 

Eastern Europe 2,760 2,210 2,800 

Latin America 802 823 877 

Oceania 35 94 96 

Western Europe 9,445 10,303 9,369 



14,776 



1,424 



605 
667 



2,696 



Senegal: 

Asia 

Eastern Europe . 
Western Europe . 
Other 



315 

57 

877 





Total 1,249 



Total 1 ,993 



United States: 

Africa 

Asia 

Canada 

Eastern Europe 
Latin America . . 
Oceania 





3,498 

2,648 

863 

440 

390 

Western Europe 3,776 



Total 11,615 



282 

112 

939 

27 



1,360 



2,760 



89 
3,401 
3,380 
1,004 
473 
288 
3,074 



1 1 ,709 



365 
78 

789 
22 



1,254 



Togo: 

Asia 20 76 126 

Eastern Europe 799 783 567 

Western Europe 1,174 1,786 1,612 

Other 115 140 



2,445 



U.S.S.R: 

Eastern Europe 3,701 3,467 3,060 

Western Europe 1,193 911 888 

Other 5 

Total 4,894 4,383 3,948 





3,277 

2,591 

830 

341 

334 

2,909 



10,282 



Sources: 1983 values, BuMines Mineral Facts and Problems, 1985 (77); 1984-85 values, International Fertilizer Industry Association Ltd. (12-13). 



TRADE 

World trade in phosphate rock for the 1983-85 period 
is shown in table 4. The 1985 values are illustrated on 
figure 4. The table shows the destination of phosphate rock 
from major exporting countries to the major importing areas 
of each. This table shows exports only. The phosphate rock 
not exported directly by country is either consumed 
domestically or exported after further processing. 

Comparing 1985 production quantities in table 1 with 
trade quantities in table 4 shows that the United States 
exported over 10 million mt of phosphate rock, or 21 pet 
of its production, a relatively low percentage compared with 
those of the other major MEC exporters. Morocco exported 
over 14 million mt of phosphate rock, more than 70 pet of 
its production. Algeria and Tunisia together exported more 
than 1.9 million mt in 1985, 34 pet of their combined pro- 
duction. Isreal and Jordan together exported nearly 7 
million mt in 1985, almost 70 percent of their combined pro- 
duction. Senegal exported over 1.2 million mt, 70 pet of its 
1985 production. Togo exported 2.4 million mt, almost all 
of its production for 1985. The U.S.S.R. exported nearly 4 
million mt, just over 12 pet of its 1985 production. Oceania 
and the Far East exported about 2.7 million mt, nearly all 
of their production for 1985. 

These numbers reflect rates of domestic consumption 
and the amount of capacity to further process phosphate 
rock into phosphoric acid or fertilizer products in the various 
countries. The United States has been for many years an 
industry leader in the processing of phosphate rock and the 
export of higher-value-added forms of phosphate. The re- 
cent trend, however, has been for more of the rock produc- 
ing countries to develop phosphoric acid capacity and to 
export higher-value-added products. Morocco, which now 



Morocco. 33 pet 



Israel and 
Jordan. 16 pet 



Algeria and 
Tunisia. 4 pet 




Oceania and 
Far East. 6 pet 

Senegal. 3 pet 
Togo. 6 pet 



U.S.S.R.. 9 pet 



23 pet 



TOTAL EXPORTS. 44.284 x 10° mt 

FIGURE 4. — Principal exporters of phosphate rock, 1985. 

exports mostly unprocessed phosphate rock, has just com- 
pleted a major fertilizer plant at Jorf Lasfar. Other coun- 
tries that have made public pronouncements to increase 
value-added capacity for their phosphate exports include 
Togo (depending on the availability of financing) and 
Tunisia. 

The United States exported significant quantities of 
chemical phosphate products during 1984, the latest year 
for which complete data are available. Table 5 and figure 
5 show exports of processed phosphate products from the 
United States and other countries. Excluded from the table 
are all phosphate products that are consumed within the 
country in which they are manufactured. Included in the 
table and figure are reexports from countries that must im- 



Table 5. — Processed phosphate exports, 1984 

(Thousand metric tons of P 2 5 ) 



Exporting source and Phosphoric Triple 

destination of exports acid superphosphate 

ROCK PRODUCERS 

Jordan: 

Africa 

Asia 32 

Oceania 

Western Europe 

Total 32 

Morocco: 

Africa 7 

Asia 741 103 

Eastern Europe 6 37 

Latin America 34 

Western Europe 300 62 

Total 

Senegal: 

Africa 

Asia 

Western Europe 

Total 

South Africa, Republic of: 

Africa 

Asia 62 

Latin America 69 

Oceania 

Western Europe 81 

Total ~ 212 

Tunisia: 

Africa 14 

Asia 251 59 

Eastern Europe 6 16 

Latin America 10 

Western Europe 77 93 

Total 334 192 

includes Belgium, Finland, France, Netherlands, Spain. 
2 Quantity was less than 1 unit. 

Source: International Fertilizer Industry Association Ltd. (14). 



Ammonium 
phosphates 



Exporting source and Phosphoric Triple Ammonium 

destination of exports acid superphosphate phosphates 

ROCK PRODUCERS— Continued 

United States: 

Africa 8 52 

Asia 274 51 1,923 

Canada 45 95 101 

Eastern Europe 521 80 46 

Latin America 185 143 374 

Oceania 34 149 

Western Europe 45 98 538 

Total 1,070 509 3,183 



26 

185 

10 

23 



244 







36 



1,081 


209 


36 




55 

5 




3 


9 




60 


3 


9 



4 
11 

2 
18 
13 



48 



30 

54 

5 



112 



201 



REEXPORTERS 



Korea, Republic of: 

Africa 

Asia 

Western Europe 0_ 

Total 0_ 

Turkey: 

Africa 

Asia 

Eastern Europe 

Western Europe 0_ 

Total 0_ 

Western Europe: 1 

Africa 

Asia 52 

Eastern Europe 85 

Latin America 1 

North America ( 2 ) 

Western Europe 301 

Unknown 1 

Total 440 



12 

41 

14 

9 



76 








169 
30 



199 



14 

181 

42 



237 





16 







16 



12 

11 





4 

179 

20 



226 



Western Europe 
1 7 pet 



United States 
43 pet 




Senegal and Turkey 
6 pet 



Tunisia 
I6pct 



Western Europe 
I4pct 



TRIPLE SUPERPHOSPHATE 



Jordan and Senegal 
3 pet 



United Stotes 
33 pet 




Western Europe 
5 pet Jordan 
6 pet 



Republic ot 
Tunisia South Atrica 

10 pet 7 pet 

PHOSPHORIC ACID 




Korea 
6 pet 

Morocco.Republicof 
South Africo, Senegal, 

and Turkey; 2 pet 

Tunisia 
5 pet 



AMMONIUM PHOSPHATES 



FIGURE 5. — Principal exporters of phosphate fertilizer products, 1984. 



port the phosphate rock used to make these phosphate pro- 
ducts. These are primarily Western European countries 
trading within Western Europe and the Republic of Korea, 
which exports to its Asian neighbors. 

As can be seen from the information contained in 
table 5, the United States is the largest exporter of proc- 
essed phosphates. Morocco is a major exporter of phosphoric 
acid and triple superphosphate. Tunisia exports a substan- 
tial amount of all three products, and its total processed 
phosphate exports are a large percentage of its total 
phosphate rock production level. 

Also apparent from table 5 is that Asia (primarily In- 
dia, Japan, and China) is the biggest import market for pro- 
cessed phosphates. These countries are the principal 
destinations for processed phosphate products from Jordan, 
Morocco, Senegal, Tunisia, the United States, and the 
Republic of Korea. The market for processed phosphates is 
in sharp contrast to the export market for phosphate rock 
(see table 4), where Western Europe is the biggest importer. 
This reflects the fact that Europe has a large number of 
phosphate fertilizer plants and is able to convert imported 
rock into various fertilizer products. 

Figure 6 shows the combined exports of phosphate in 
all product forms for each of the major phosphate-rock- 
producing countries exporting in 1984. Phosphate rock ex- 
ports shown in table 4 have been converted to P 2 5 content 
and combined with the exports of processed forms of 



phosphate reported in table 5. It is apparent that the United 
States is the world's largest exporter of phosphate when all 
product forms are combined. Also apparent is that (with the 
exception of the United States, Morocco, and Tunisia) most 
of the phosphate trade in the world is in the form of 
phosphate rock, also the trend is toward an increasing trade 
of processed phosphates. 



IXXXXI Phosphate rock 




Processed phosphate 



UNITED STATES MOROCCO 



JORDAN TOGO. SENEGAL, TUNISIA OCEANIA, 
REPUBLIC OF FAH EAST 

SOUTH AFRICA 



FIGURE 6. — Principal MEC exporters of phosphate rock and 
processed phosphate, 1984. 



METHODOLOGIES AND COST DATA 



METHODOLOGIES 
Cost Estimation and Data Development 

The costs used in this study were collected or developed 
using various methodologies. All values are in terms of 
January 1985 U.S. dollars. Costs for the developed deposits 
in the Southeast United States (including Florida, North 
Carolina and Tennessee) were collected or estimated by the 
Bureau's Intermountain Field Operations Center in Denver, 
CO. Data for most of the undeveloped properties in the 
Southeast United States were based on the work done by 
Zellars-Williams, Inc., under Bureau contract. Costs for all 
deposits in the Western United States (Idaho, Montana, 
Utah, and Wyoming) were collected or developed by the 
Bureau's Field Operations Centers in Denver, CO, and 
Spokane, WA, using engineering expertise and various 
methodologies such as scaling from known values, the 
Minerals Availability System (MAS) cost estimating system 
(CES) (15), and actual reported company data. 

The costs of deposits in other countries were originally 
collected or developed by Zellars-Williams, Inc., under 
Bureau contract. Some of the costs for Morocco were updated 
based on a report by British Sulphur Corp. Ltd., London 
(2). Some of the foreign deposit costs are actual company- 
reported data, although most were developed using the con- 
tractor's computerized model. This cost model uses data on 
labor, equipment, and supplies, which are site-specific for 
each deposit. Estimates are made of actual quantities and 
unit costs for each variable, based on local rates at each 
deposit. The Bureau's economic index system is used to up- 
date all cost estimates to a common measure. The final prod- 
uct of this model is a unit cost for each portion of the min- 
ing and milling operation. 



Capital expenditures were calculated for exploration, 
acquisition, mine plant and equipment, constructing and 
equipping the mill plant, and all necessary reinvestment 
in mine or mill. Capital expenditures for mining and proc- 
essing facilities include the costs of mobile and stationary 
equipment, construction, engineering, facilities and utilities 
(infrastructure), and working capital. The facilities and 
utilities category includes the cost of access and haulage 
facilities, water facilities, power supply, and personnel ac- 
commodations. Working capital is a revolving cash fund re- 
quired for such operating expenses as labor, supplies, taxes, 
and insurance. For this study, working capital was 
estimated as 2 to 3 months of operating costs. 

Mine and mill operating costs for each deposit are 
calculated in local currencies and then converted to U.S. 
dollars. Operating costs are a combination of direct and in- 
direct costs. Direct operating costs include materials, 
utilities, direct and maintenance labor, and payroll 
overhead. Indirect operating costs include technical and 
clerical labor, administrative costs, facilities maintenance 
and supplies, and research. Other costs in the analysis are 
fixed changes, which include mainly local taxes and 
insurance. 

Transportation charges are derived from actual data 
when available or are estimated from da x a for other prod- 
ucts in the same geographical area. The in-country transpor- 
tation cost required to get phosphate rock to a port (for possi- 
ble export) or to a phosphoric acid plant (for further proc- 
essing) is included in the "Cost Data" section. The ocean 
freight charges incurred in moving phosphate products to 
final markets are included only in the network flow model. 

Acidulation costs (estimated for all facilities included 
in the network flow model) are comprised of separate 
estimates for sulphur, electric power, labor, supplies, water, 



fuel, and waste disposal. Credits for steam generated in 
some operations are accounted for where applicable. 
Phosphoric acid plant production costs are used only in the 
network flow model. The cost of phosphate rock feed to the 
various phosphoric acid plants (and the source of the feed) 
is derived as part of the optimal solution of the network, 
but all other elements of variable cost are specified prior 
to solution. (A listing of phosphoric acid plants is provided 
in appendix B.) 

The Bureau's economic index system was used to up- 
date cost estimates (as necessary) to a base date (January 
1985 for this report). The index system includes updating 
factors for 12 separate components of mining cost (e.g., min- 
ing labor, mining equipment, diesel fuel) for foreign coun- 
tries and 15 components for the United States. The index 
values for each component in each country take account of 
whether the expenditure is in local or foreign currency and 
what the traditional sources are for needed imports such 
as machinery. A time series of exchange rates (also part 
of the index system) is used to translate the cost index 
values developed in local currencies into values expressed 
as U.S. dollars. 

Availability Estimation 

After capital and operating costs are determined, deposit 
data are entered into the supply analysis model (SAM). The 
Bureau developed the SAM to perform discounted-cash-flow 
rate of return (DCFROR) analyses to determine the price 
of the primary commodity required so that each operation 
obtains a specified rate of return on its investments (16). 
This determined value for the phosphate rock price is 
equivalent to an average total cost of production for the 
operation over its producing life under the set of assump- 
tions and conditions (i.e., mine plan, fill-capacity produc- 
tion, and a market for all output) necessary in order to make 
an evaluation. The DCFROR is most commonly defined as 
the rate of return that makes the present worth of cash flow 
from an investment equal the present worth of all after- 
tax investments (1 7). For this study, a 15-pct DCFROR was 
considered the necessary rate of return for operations to 
cover the opportunity cost of capital plus risk. A DCFROR 
analysis for each property was also performed with a 0-pct 
rate of return, and both sets of results are presented later 
in the "Availability" section. 

For purposes of the DCFROR methodology, all capital 
investments incurred 15 yr before the initial year of 
analysis (January 1985) are treated as fully depreciated 
costs. Capital investments incurred less than 15 yr before 
January 1985 have the undepreciated balances carried for- 
ward to January 1985. All subsequent investments, 
reinvestments, operating costs, and transportation costs are 
expressed in January 1985 dollars. 

A separate tax records file, maintained for each State 
or nation, contains the relevant parameters under which 
the mining firm would operate. Tax parameters include 
structures and rates for corporate income taxes, property 
taxes, and any royalties, severance taxes, or other taxes that 
pertain to phosphate rock production. These tax parameters 
are applied to each mineral deposit under evaluation, with 
the implicit assumption that each deposit represents a 
separate corporate entity. 

Upon completion of the individual property analyses, 
all 206 properties included in the study were sequentially 
aggregated onto resource availability curves. Two types of 
resource availability curves have been generated for this 
study: (1) total availability curves and (2) annual availabil- 



ity curves. 

The total resource availability curve is a tonnage-cost 
relationship, which shows the quantity of recoverable prod- 
uct potentially available at each operation's average total 
cost of production, as determined at the specified (15-pct) 
DCFROR. Thus, the curve is an aggregation of the total 
potential phosphate rock that could be produced over the 
entire producing life of each operation, ordered from opera- 
tions with the lowest average total cost of production to 
those with the highest. The curve provided a concise, easy- 
to-read, graphic analysis of the comparative costs associated 
with any given level of potential output. 

Annual availability curves are simply a disaggregation 
(using installed capacity instead of total tonnage) of the total 
curve to show annual phosphate rock availability at vary- 
ing total costs of production. These curves show (for the near 
term) the maximum annual production capacity from cur- 
rent producers and the maximum amount of new produc- 
tion capacity that could become available at various lead 
times necessary for development. 

Certain assumptions are inherent in the curves. First, 
all deposits produce at full operating capacity throughout 
the productive life of the deposit. Second, each operation 
is able to sell all of its output at a price equal to its average 
total production cost. Third, development of all nonproduc- 
ing deposits begins in a base year N (unless the property 
was developing at the time of the evaluation or definite 
startup dates were known). No assumption is made about 
circumstances that might lead property owners to develop 
the various mines. In almost all cases, the preproduction 
period allows for only the minimum engineering and con- 
struction necessary to initiate production under the pro- 
posed development plan. Consequently the additional time 
lags and potential costs involved in filing environmental 
impact statments, receiving required permits, financing, 
etc., have not been included in the individual deposit 
analyses. This third assumption is incorporated in all MAP 
studies to show minimum development time in periods of 
national need. 

Market Balance Model 

The market balance model presented in this study is 
a world market model for phosphate that incorporates sup- 
ply, demand, and price into a larger framework within 
which supply estimates can be made. The emphasis has 
been placed on the development of logical, defensible sup- 
ply models that utilize the detailed deposit-specific data base 
(described in the two previous sections on cost and 
availability) in making projections of the amount of 
material likely to be supplied to the market under a variety 
of different market conditions. 

Supply for MEC's represents annual production 
amounts from demonstrated resources at mines and deposits 
with installed capacity. Production from CPEC's is deter- 
mined exogenously, and deposit data are only used to verify 
that specified production levels are attainable. 

Total supply is equal to the aggregate of annual pro- 
duction from the installed capacity at developed deposits. 
Cost levels at each of the MEC deposits are used in the 
determination of individual annual production levels. The 
production capacity and resource numbers presented later 
in the "Availability" section are the upper limits on how 
much primary supply is available from each MEC deposit 
in a single year and over a series of years. 

The market balance model is a systems simulation 
model (18) that establishes an annual balance of world sup- 



10 



ply and world demand by finding an equilibrium market 
price. The balance is made at a global level, with total 
demand for P 2 5 in all product forms equal to the total P 2 5 
content of phosphate rock available at various transship- 
ment points, after accounting for processing and handling 
losses. As they are represented in the model, both supply 
and demand can respond to changes in market price. The 
estimated production at each deposit is subtracted from the 
remaining resources each year until an ore body is depleted. 
Available deposits are developed in a timely fashion to 
maintain an approximate balance of capacity with consump- 
tion over time. 

The market balance model is useful in examining ques- 
tions of resource adequacy over the medium to long term, 
under various scenarios concerning likely future demand 
levels. The magnitude and timing of new capacity require- 
ments and the capital needed to finance development are 
monitored. The average total cost levels at new mines will 
correspond to an expected future market price, or incentive 
price, that different property owners might be anticipating 
when they make development decisions. Total costs are not 
included in the simulation model except to set priorities on 
which properties are triggered to develop first. 

Network Flow Model 

The network flow model is a single-year optimization 
model (19). It takes account of the trade flows as material 
goes from ore in the ground at specific deposits to final prod- 
ucts consumed in various world regions. Transportation and 
intermediate processing are more fully incorporated into 
this model than they are in the market balance model. The 
network flow model provides a pattern of production and 
material flow that satisfies all regional demands at a 
minimum total system cost (i.e., all variable costs incurred 
in satisfying worldwide demand). The network flow model 
can be made to solve for a series of years by using the logic 
of the market balance model to deplete resources, bring on 
new capacity, and alter costs of production and other 
deposit-specific data on a year-to-year basis as appropriate. 

The network flow model is well suited to answering 
questions related to regional competition, production, and 
trade flows. Since detailed material flows are solved for, 
such things as regional trade barriers can be incorporated 
into the model directly as constraints. 

Both model forms (market balance and network flow) 
are described in more detail in appendix E, and the man- 
ner in which the models are able to exploit the availability 
data base is also addressed. Topics such as how additional 
supply-side data can be utilized, how demand estimates are 
generated and incorporated into the models, and how the 
model solutions are to be interpreted are given extensive 
treatment in appendix E. 

COST DATA 

Figure 7 summarizes many of the cost data developed 
for the producing properties included in this study and 
shows the distribution of MEC production capacity as well. 
The curve on the graph represents cumulative production 
capacity of all the MEC producing deposits included in the 
study, ordered from those with the smallest annual produc- 
tion capacity to those with the largest. The dashed vertical 
lines divide the graph into quartiles of cumulative produc- 
tion capacity. The four pairs of bar charts that are superim- 
posed on the capacity distribution show the average costs 
of production (either average variable costs or total costs 



£3.5 
£3.0 



•2.5 



g2.0 

< 
o 

z 
o 



1.5 



o 

8 l0 

rr 
a. 

d 5 



< 



st QUARTILE 



2d QUARTILE 



3d QUARTILE 



4th QUARTILE" 



KEY 

BO-pct DCFR0R| 
Average variable 
cost 




10 20 30 

CUMULATIVE CAPACITY, I0 6 mt P 2 5 

FIGURE 7. — Cumulative capacity of MEC producers, with 
average production cost by quartile, 1985. 

at a 0-pct DCFROR) for deposits of each size category. 

There are 49 properties with capacities of about 0.5 
million mt (P 2 5 contained in phosphate rock) or less, which 
in total make up the first 25 pet of production capacity 
shown on the graph (i.e., the first quartile). The average 
costs of production for these (smallest) properties are the 
highest of any of the quartile averages, whether measured 
by the 0-pct DCFROR total cost level or by the average 
variable cost level. The 15-pct DCFROR total cost measure 
(not shown on this graphic) follows the same pattern as the 
0-pct DCFROR. The average of the average variable costs 
for properties with 0.5 million mt of annual capacity or less 
is almost $95/mt of P 2 5 contained in phosphate rock. At 
a 0-pct DCFROR level, the average total cost of production 
is $120/mt. 

The second quartile contains 15 properties with annual 
production capacities between 0.5 and 0.9 million mt con- 
tained P 2 5 . The average total cost of production (0-pct 
DCFROR) for these properties is almost $90/mt, and the 
average of the average variable costs for properties in this 
size range is $67/mt. 

The third quartile is comprised of eight properties rang- 
ing in size from 0.9 million to almost 1.3 million mt annual 
capacity. The average total costs for properties of this size 
are about $70/mt and the average of the average variable 
costs are $56/mt. The fourth quartile is comprised of six 
properties ranging in size up to more than 3.0 million mt 
annual capacity. Average costs of production for properties 
in this quartile are almost the same as for properties in the 
third quartile, $76/mt on a total cost (0-pct DCFROR) basis, 
and $59/mt for average variable costs. 

These values suggest there are enormous economy-of- 
scale cost advantages. The fact that southeast U.S. proper- 
ties are generally larger helps explain why U.S. operating 
costs are currently among the lowest in the world. Con- 
versely, the generally smaller size of properties in many 
countries such as Egypt corresponds to a generally higher 
estimated cost of production from those deposits. 

The following sections present a more detailed 
breakdown of the estimated capital, operating, and 
transportation costs of MEC deposits. Cost estimates are 
presented for both producers and nonproducers. Country- 
by -country values are shown for most of the categories of 
cost in terms of dollars per metric ton of phosphate rock. 
Some analysis is provided for several of the components that 
make up operating costs; these costs are shown in dollars 
per metric ton of P 2 5 contained in phosphate rock. 



11 



Table 6. — Average capital costs 1 to develop nonproducing surface phosphate mines in selected countries 



Country 


Tonnage, 
Ore 


10 3 mt/yr 
Product 


Cost, 2 


10« j an . 


1985 $ 




Cost, 2 Jan. 
Ore 


1985 $/mt (annual) 


Exploration, 
acquisition, 
development 


Mine 


Mill 


Total 


Product 


Australia 

Brazil 

Morocco 

Tunisia 


5,700 
2,600 
3,800 
2,200 


2,400 

500 

2,100 

1,100 

1,600 
700 


4.6 

5.2 

28.4 

1.1 

65.5 
4.0 


21.3 

4.2 

73.0 

13.3 

30.1 
10.9 


31.4 
20.3 
63.2 
23.9 

67.8 
53.1 


57.3 

29.7 

164.6 

38.3 

163.4 
68.0 


10.10 
11.40 
43.30 
17.40 

15.00 
75.60 


23.90 
59.40 
78.40 
34.80 


United States: 

Southeast 

West 


10,900 
900 


102.10 
97.10 



1 Excludes infrastructure and reinvestment. 

2 Rounded. 



Capital Costs 

Table 6 shows the average capital costs required to 
develop nonproducing surface deposits as estimated for this 
report. These costs represent the costs to acquire, explore, 
develop, and equip a new minesite, along with constructing 
any mine and mill plants and buildings necessary. The table 
shows that in most cases the capital cost for the mill (plant 
and equipment) is the largest cost in developing a phosphate 
deposit (40 to 80 pet of total capital investment). Not shown 
on the table are infrastructure costs, which in countries like 
Australia or Brazil can be very large and can make the dif- 
ference in a choice to develop or not develop. Also excluded 
from the table are the necessary reinvestments that occur 
periodically over a property's life. 

The data in table 6 are for an average-size property in 
each of the reported regions. The United States has the 
highest average capital cost per metric ton of annual 
capacity, and Australia has the lowest. A principal reason 
for high costs in the Southeast United States is the large 
expenditure for exploration, acquisition, and development 
(primarily land acquisition). While Morocco shows a 
substantial expenditure in the same category, this consists 
largely of development costs. Since most operations outside 
the United States are government owned or government 
controlled, there is generally very little expenditure 
involved in acquiring a property prior to development. 

The low-cost Australian deposits are located in relative- 
ly remote regions, and actual development of these proper- 
ties would require several times the reported expenditure 
in order to construct the needed infractructure. The costs 
reported in the "Availability" section reflect all costs (in- 
cluding infractructure and reinvestment) entailed in get- 
ting a marketable product to a transshipment point. 

Production Costs 

Table 7 shows average production costs for selected sur- 
face and underground operations in selected regions. Figure 
8 illustrates the costs for surface properties only. Mines and 
deposits in some regions were excluded to protect 
confidentiality. 

Mine operating costs for producing surface mines 
average $7.80/mt of product. Costs for the most significant 
producing regions outside the United States (Morocco, 
Tunisia, Israel, Jordon, Senegal, and Togo) range from 
$7.20/mt to $9.50/mt, reflecting a similarity in mining 
methods and stripping ratios. The mine operating cost in 
the Southeast United States ($4.90/mt) is lower than that 
of other regions, primarily because of low stripping ratios. 
Average mine operating costs for deposits not yet developed 
in the Southeast United States are estimated to be 
significantly greater (more than double that of producers), 



primarily because of the increased depth of the ore zones 
and the greater stripping ratios in the "southern extension" 
deposits (the most significant nonproducing deposits in the 
Southeast United States), which result in more materials 
handling and greater lengths of transport. 

Mill operating costs for producing surface mines average 
$ll/mt. Costs for southeast U.S. producers are less than 
those for producers in Morocco, Tunisia, Israel, Jordan, 
Senegal, and Togo ($7.40/mt as compared with a range of 
$10.30 to $12.80). This is primarily because the ore in the 
Southeast United States mines has had a significant pebble 
fraction that requires little or no beneficiation. However, 
undeveloped deposits in the southern extension in Florida 
have a much smaller pebble fraction, if any, and may re- 
quire additional beneficiation; therefore, the mill operating 
costs will be greater. 



80 



70 - 



KEY 

%?%! 15-pctDCFROR 
Capital recovery 
Taxes and royalties 
Transportation 
Milling cost 
Mining cost 




-PRODUCERS 



N0IMPR0DUCERS- 



FIGURE 8. — Phosphate rock production costs for surface 
mines in selected regions. 

Another reason the mine and mill operating costs are 
less in the Southeast United States may be the size of the 
operations. The average size of a producing mine in the 
Southeast United States is over 9 million mt/yr feed to the 
mill, while Morocco mines, e.g., produce under 6 million 
mt/yr feed (not including the large Daoui Mine). The data 



12 



Table 7.— Phosphate rock production costs for selected mines and deposits 

(January 1985 dollars per metric ton phosphate rock) 



Operating costs 



Region and country 



Mine 



Mill 



Transport 1 



Net 



Recovery 

°f , Taxation 3 
capital 2 



O-pct DCFROR 



15-pct DCFROR 



Production 
cost 4 



Taxation 5 



Return on 
investment 6 



Production 
cost 7 



SURFACE OPERATIONS 



NORTH AMERICA 
United States: 
Southeast: 8 

Producers $4.90 

Nonproducers 10.00 

West: 

Producers 9 14.30 

Nonproducers 11 20.20 

SOUTH AMERICA 

Brazil, Peru, and Venezuela: 

Producers 6.00 

Nonproducers 11.10 

NORTH AFRICA 

Algeria and Tunisia: 

Producers 9.50 

Nonproducers 4.70 

Morocco and Western Sahara: 

Producers 8.60 

Nonproducers 7.90 

WEST AFRICA 
Senegal and Togo: Producers 7.20 

MIDDLE EAST 

Egypt, Israel, and Jordan: 

Producers 8.80 

Nonproducers 10.50 

Iraq and Syria: Producers 19.30 



$7.40 
15.40 


$3.00 
6.10 


$15.30 
31.50 


$2.20 
4.00 


$2.10 
3.10 


$19.60 
38.60 


$3.60 
10.90 


$3.20 
15.40 


$24.30 
61.80 


10.90 
14.70 


10 

12.10 


25.20 
47.00 


1.30 
5.10 


.90 
1.60 


27.40 
53.70 


1.50 
8.70 


1.50 
13.70 


29.50 
74.50 


15.60 
16.80 


6.70 
3.60 


28.30 
31.50 


4.60 
10.00 


4.70 
5.40 


37.60 
46.90 


10.70 
27.00 


9.40 
22.50 


53.00 
91.00 


12.40 
12.90 


7.70 
3.60 


29.60 
21.20 


2.80 
2.60 


7.50 
8.10 


39.90 
31.90 


11.70 
15.30 


3.50 
8.00 


47.60 

47.10 


10.30 
10.90 


3.60 
2.30 


22.50 
21.10 


.90 
1.60 


5.00 
5.90 


28.40 
28.60 


7.90 
13.30 


2.70 
8.90 


34.00 
44.90 



12.60 



12.80 
15.70 
18.60 



2.20 



22.00 



3.60 



5.30 



30.90 



7.10 



3.80 



36.50 



5.80 


27.40 


3.60 


6.90 


37.90 


9.50 


3.40 


43.90 


4.50 


30.70 


4.90 


8.60 


44.20 


13.90 


7.70 


57.20 


6.20 


44.10 


4.40 


7.50 


56.00 


13.70 


3.90 


66.10 



UNDERGROUND OPERATIONS 



NORTH AMERICA 
United States: Nonproducers 12 .... $49.10 $36.00 

NORTH AFRICA 

Morocco: Producers 18.50 17.30 

Tunisia: Producers 9.60 8.30 

MIDDLE EAST 
Egypt: Producers 18.50 23.50 

OCEANIA 

Australia: Nonproducers 8.60 14.90 

Christmas Island 13 and Nauru: 
Producers 6.40 7.30 



$14.00 $99.10 $5.30 



$2.10 



$106.50 



$14.20 



$28.70 



$147.30 



4.30 


40.10 


.80 


5.20 


46.10 


7.40 


2.00 


50.30 


6.90 


24.80 


5.70 


7.20 


37.70 


10.40 


3.60 


44.50 



1.20 



43.20 



7.10 



5.30 



55.60 



10.50 



11.20 



72.00 



14.10 


37.60 


8.30 


2.20 


48.10 


7.00 


6.60 


59.50 


0.00 


13.70 


2.20 


8.20 


24.10 


9.00 


1.50 


26.40 



1 Transportation costs to ports or acid plants that have been assumed as product destination points for this study. See table D-1 in appendix D. 

2 Includes cost of recovering remaining undepreciated investments in exploration, acquisition, development, mine and mill plant and equipment, and infrastructure, 
and reinvestments required over the life of the operation. 

3 Includes property, State, Federal, and severance taxes, and royalties where applicable, calculated at a 0-pct DCFROR. 

4 Equal to the sum of net operating costs, taxation, and capital recovery determined at a 0-pct DCFROR. 

5 Includes property, State, Federal, and severance taxes, and royalties where applicable, calculated at a 15-pct DCFROR. 

6 The per metric ton revenue increase necessary to obtain a 15-pct DCFROR. 

7 Equal to net operating costs, plus taxation generated at a 15-pct DCFROR, plus capital recovery, plus return on investment. 

8 Includes Florida and North Carolina. 

9 Represents only Idaho. 

10 Transportation costs for Idaho included in mill costs. 

11 Includes Idaho, Utah, and Wyoming. 

12 Includes Montana, Utah, and Wyoming. 

13 Australian territory. 



represented in figure 7 show the degree to which economies 
of scale show up in averaged cost data. Though many factors 
are important in the determination of cost of production, 
the large size of mines in the Southeast United States may 
lead to an economy-of-scale advantage over many other 
operations worldwide. 

Production costs are also shown for producing 
underground mines and deposits in north Africa and the 
Middle East and the nonproducers in the western United 
States (Utah and Wyoming). When these costs are compared 
with those of surface mines, it is apparent, as would be 
expected, that the underground operations are much more 
expensive to operate. 

The underground nonproducers in the Western United 
States (Utah and Wyoming) would have average production 



costs higher than those of any other phosphate deposits 
evaluated. This is largely due to characteristics of the ore, 
coupled with the high costs of underground mining. Few 
of these highly uneconomical deposits are likely to be 
developed in the near future. 

Transportation costs from mine to plant or port are 
relatively high where deposits are in remote locations, such 
as in the Western United States, where the phosphate rock 
often must be transported some distance for beneficiation, 
and in Australia, where the deposits are in the middle of 
Queensland and the rock must be transported to the coast. 

The columns in table 7 labeled "Taxation" also include 
royalty payments, where applicable. Taxation costs are 
generally greater for nonproducers, because they are based 
on a phosphate price high enough to generate the 



13 



prespecified (15- or 0-pct) rate of return on investment. Since 
the revenue (and taxable income) necessary to cover the 
high overall costs (including profit) are greater in most cases 
for nonproducers, these properties will consequently have 
higher tax payments as well. 

Figures 9 and 10 show distributions of the costs of labor 
and energy inputs for each of the MEC producers. The prop- 
erties are ordered on the graph from those having the lowest 
average labor (or energy) cost per unit of P 2 5 production 
capacity to those with the highest average per-unit cost. The 
dashed vertical lines divide the graph into quartiles, so that 
25 pet of MEC production capacity with the lowest average 
labor (or energy) cost is shown between and 10 million 
mt P 2 5 . Average costs for mines in several important 
regions have been located on the graph as well. Note that 
the average (and median) costs are not for the average (or 
median) property, but are instead for the average (and 
median) metric ton of cumulative capacity. 



1 40 



■» 30 



IstQUARTILE 2d QUARTILE 

KEY 
Middle East 
North Atrica 
1 United States 


3d QUARTILE 


4th QUARTILE 


- J 






1-=. 










FIGURE 9. 
nent, 1985. 



10 20 30 40 

CUMULATIVE CAPACITY, I06 mt P 2 5 

MEC phosphate production costs, labor compo- 



Labor and energy are two of the more significant 
operating cost components of a phosphate rock mining and 
beneficiation operation. The levels of labor and energy costs 
reflect both the per-unit (of labor and energy) costs that exist 
in each of the producing MEC's, as well as the degree to 
which the component is utilized in the operation (factor 
intensity). 

The average cost for labor for all MEC developed pro- 
duction capacity is just over $9/mt P 2 5 (approximately 16 




pet of total operating costs), and the median (50th percen- 
tile of cumulative production capacity) is $6/mt. The average 
labor cost in the United States is about $7/mt P 2 5 , which 
is lower than the average labor costs at both north African 
and Middle Eastern phosphate rock facilities. Average U.S. 
labor costs are relatively low primarily because of the high 
degree of mechanization at U.S. properties. The high 
average for Middle Eastern producers is partly a result of 
the labor-intensive nature of the Egyptian operations. 

The average cost for energy for all MEC developed pro- 
duction capacity is almost $19/mt. This is a full third of the 
average total operating cost level. U.S. energy costs at cur- 
rently producing properties are below the overall average 
and below both of the other regional averages shown, reflect- 
ing primarily the lower rates for available energy. 

Transportation Costs 

The cost of transportation of phosphate rock and 
phosphate fertilizers is an important factor in determining 
the relative competitive position of alternative supplies. 
Phosphate resources and production capacity are widely 
distributed around the world, but the major consuming 
regions often are far from the producing areas. This has led 
to a large volume of international trade (as a percentage 
of production) and a substantial increase in the cost of 
delivered phosphate products relative to their cost of pro- 
duction (typical for bulk commodities). 

The transport of phosphate products can be usefully con- 
sidered as a combination of intracountry and intercountry 
movements. The intracountry portion includes movement 
of ore from mine to wash plant or mill (usually, but not 
always, in proximity), movement of phosphate rock from 
mill to port or phosphoric acid plant, and movement of 
phosphoric acid to port. Intercountry transport is mostly 
ocean shipment of phosphate rock, phosphoric acid, or 
phosphatic fertilizers from producer-country ports to con- 
sumers in other countries. 

Figure 11 shows a distribution of intracountry transport 
costs for all MEC properties. These are the costs incurred 
by different producers in getting phosphate rock either to 
a port or to an in-country phosphoric acid plant and are in- 
cluded in the average variable costs reported in the 
"Availability" and "Supply" sections. Figure 11 does not 
include ocean transport of phosphate rock or any transport 
charges for phosphoric acid. 



IstQUARTILE 2d QUARTILE 3d QUARTILE 4th QUARTILE 




FIGURE 10. — MEC phosphate production costs, energy com- 
ponent, 1985. 



10 20 30 

CUMULATIVE CAPACITY, I06 mt P 2 5 

FIGURE 11. — MEC phosphate production costs, intracoun- 
try transportation component, 1985. 



14 



Properties accounting for almost 25 pet of the MEC 
annual production capacity show little or no transport costs. 
These are mostly mines that are located in proximity to a 
phosphoric acid plant or port. The average charge for in- 
tracountry transport of phosphate rock is $14/mt P 2 5 (con- 
tained in phosphate rock). This is 20 pet of the average 
operating cost (excluding royalty payments and severance 
taxes) and a smaller percentage of total costs. The U.S. 
average charge for in-country transportation is about 
$13/mt of P 2 5 , slightly below the MEC average. 

The estimated transport charge relates almost directly 
to the distance between mine and port, and where that 
distance is large the economic viability of the property can 
be in jeopardy. For example, the Duchess Mine in Australia 
is a former producer with estimated variable costs that place 
it in the middle of the range of producing properties, when 
transport charges are excluded. However, the Duchess Mine 
is 1,100 km from the port of Townsville, and the required 
cost of transporting phosphate rock this distance raises the 
production costs substantially. 

The cost of transportation depends on the product being 
shipped, as well as the distance, size of load and vessel, and 
market conditions. That is, high-grade (i.e., higher P 2 O s con- 
tent) material can be shipped for approximately the same 
cost as low-grade material, and therefore, it is cheaper 
(measured as cost per unit of P 2 5 content) to ship higher 
grade material. Some of the properties that produce higher 
grade phosphate rock are deposits in Finland, Nauru, 
Christmas Island, Togo, and Western Sahara. All these pro- 
duce phosphate rock for export. (See table A-l in appendix 
A for information on product grades at all MEC deposits.) 
Relatively lower grade material is produced in Egypt, 
Senegal, and Tunisia. Egypt's production is used primarily 



for local markets, since it is less competitive in the export 
market. Senegal exports phosphate rock, but analysis later 
in this report suggests there is incentive for Senegal to 
develop a phosphoric acid industry so it can export higher- 
value-added (and higher P 2 5 content) material. Tunisia 
already is a major producer of processed phosphates and is 
able to reduce its transportation cost burden by shipping 
those higher grade products to export markets. 

Acidulation Costs 

The average variable cost for producing phosphoric acid 
from phosphate rock was estimated separately for each 
MEC facility included in the study (see appendix B for a 
listing of phosphoric acid plants included). This represents 
all costs incurred in producing merchant-grade phosphoric 
acid (55 pet P 2 5 ), the most commonly traded concentration 
of phosphoric acid. Acidulation costs represent a large pro- 
portion of the delivered cost of phosphoric acid in each of 
the consuming regions represented in the network flow 
model. Figure 12 shows the phosphoric acid annual produc- 
tion capacity of each of the principal acid-producing MEC's. 
It also shows the average variable cost of production for all 
phosphoric acid plants in each of these countries. This 
average cost does not include the cost of phosphate rock. 

The graph is drawn with cumulative capacity shown in 
order of increasing costs, by country. Two features of the 
graph stand out prominently. First, the United States has 
most of the MEC capacity, nearly 60 pet of the total. Sec- 
ond, the producers with the lowest costs are countries that 
have no domestic phosphate rock industry. Spain, the 
Republic of Korea, and Japan must import the phosphate 
rock required to produce phosphoric acid but are all able 
to compete in the export market because they have rela- 



IDU 

to 


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£ 125 


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h-~ 


















CO 


















o 75 


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Q. 
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2 4 6 8 10 12 

CUMULATIVE CAPACITY, l0 6 mtP 2 5 
FIGURE 12. — Phosphoric acid production capacity and average cost, by region. 



14 



16 



tively low costs of production. Each of these countries has 
a relatively low-cost source of sulfur, the major cost factor 
in producing phosphoric acid when the cost of phosphate 
rock is excluded. 

The average variable cost in Western Europe (excluding 
Spain) is at the upper end of the cost distribution, similar 



15 



to the levels for Tunisia, the United States, and Morocco. 
In addition, European phosphoric acid plants have to im- 
port nearly all the phosphate rock they process. The degree 
to which these plants can remain competitive in the future 
will depend on their ability to negotiate favorable contracts 
for phosphate rock and sulfur. 



PHOSPHATE EVALUATION RESULTS 



AVAILABILITY 
Total 

Approximately 35.1 billion mt of phosphate rock 
(demonstrated resource level) is potentially recoverable from 
the 206 mines and deposits in MEC's evaluated for this 
study. Morocco and Western Sahara (21.6 billion mt) 
account for 59 pet of the total, and the United States (6.1 
billion mt) accounts for 17 pet. 

The potential availability of phosphate rock from the 
MEC deposits analyzed is shown in figure 13. The tonnages 
shown include output from developing and explored deposits 
as well as from properties that are already developed and 
producing. No reference is made to the timeframe required 
to produce these quantities or the time required to develop 
different operations. 

Approximately 33.0 billion mt of phosphate rock is 
potentially recoverable at total production costs (assuming 
a 15-pct DCFROR) less than $100/mt, from 176 mines and 
deposits. Approximately 1.3 billion mt of that total is poten- 
tially recoverable at costs ranging up to $30/mt (82 pet from 
the United States); 11.3 billion mt at costs ranging up to 
$40 (13 pet from the United States); and 14.2 billion mt at 
costs up to $50 (13 pet from the United States). An addi- 
tional 2.1 billion mt could potentially be produced at costs 
over $100/mt from 30 deposits not shown on the curve. 

The curve for north Africa includes potential produc- 
tion from Algeria, Morocco, Tunisia, and Western Sahara. 
Approximately 22.1 billion mt of phosphate rock (98 pet 
from Morocco and Western Sahara) is potentially 
recoverable from the 24 north African mines and deposits 
evaluated, 60 pet of the MEC total. Almost 7 billion mt is 
potentially recoverable at costs ranging up to $40/mt, and 
9 billion mt is potentially recoverable at costs up to $50/mt. 

The curve for the United States shows 4.7 billion mt 
of phosphate rock potentially recoverable from 98 mines and 
deposits at total costs ranging up to $100/mt. Nearly 1.1 
billion mt of phosphate rock is potentially recoverable at 
costs ranging up to $30/mt; 1.4 billion mt at costs up to $40; 
and 1.8 billion mt at costs up to $50/mt. Another 1.4 billion 
mt that is potentially recoverable from 26 deposits (mostly 
in Wyoming and Utah) at costs greater than $100/mt is not 
shown on the curve. 

The curve for the Middle East illustrates potential pro- 
duction of 1.9 billion mt at costs ranging up to $100/mt from 
17 mines and deposits in Egypt, Iraq, Israel, Jordan, Saudi 
Arabia, Syria, and Turkey. An additional 238 million mt 
of potential production from one deposit is not shown on 
the curve because its estimated cost of production is over 
$100/mt. Potential recoverable phosphate from the Middle 
East amounts to 6 pet of the MEC total. 

The three regions highlighted in figure 13 (the United 
States, north Africa, and the Middle East) account for 86 
pet of the MEC recoverable demonstrated resources of 
phosphate rock. Other countries or regions included in the 
total availability for MEC's but not shown on separate 



curves are Canada, Mexico, South America, Oceania (which 
includes Australia and Nauru), Finland, India, Pakistan, 
Sri Lanka, Angola, Senegal, the Republic of South Africa, 
Togo, Uganda, and Zimbabwe. South America has an 
estimated production potential of 802 million mt of 
phosphate rock from 14 mines and deposits, in Brazil (11 
mines and deposits) and Peru, Colombia, and Venezuela (1 
deposit each). Oceania has an estimated production poten- 
tial of 625 million mt from six mines and deposits in 
Australia (including Christmas Island) and one mine in 
Nauru. The combined potential tonnage from Senegal and 
Togo (two mines and deposits each), the Republic of South 
Africa, Angola, Uganda, and Zimbabwe (one mine each) 
amounts to 2.8 billion mt. The remaining 179 million mt 
is from Finland, India, Pakistan, and Sri Lanka (one mine 
or deposit each). 

Total availability of potentially recoverable phosphate 
rock from producing mines is compared with that from 
developing mines and explored deposits in figure 14. The 
curves include only those mines and deposits with total costs 
of $100/mt or less. Of the 35.1 billion mt of phosphate rock 
estimated to be potentially available from MEC's, 33.0 
billion mt (94 pet) is available at costs less than $100/mt, 
40 pet from producing mines and 60 pet from undeveloped 
deposits. The 6.9 billion mt of recoverable phosphate rock 
potentially available from producing mines in north Africa 
accounts for 31 pet of their total potential of 22.1 billion 
mt. For the United States, out of a total of 4.7 billion mt 
of phosphate rock, 1.6 billion mt is from producing mines 
(34 pet). Of the 1.9 billion mt of phosphate rock potentially 
available from the Middle Eastern mines and deposits, 1.3 
billion is from producing mines (68 pet). 

The total availability of phosphate rock from all MEC 
mines and deposits, with a 0- or 15-pct DCFROR, is 
illustrated in figure 15. The illustration includes all mines 
and deposits with total costs of $100/mt or less, which at 
a 15-pct DCFROR have a total of 33.0 billion mt available. 
Approximately 22.2 billion mt of phosphate rock is poten- 
tially recoverable at costs ranging up to $30/mt at 0-pct 
DCFROR, while only 1.3 billion mt is available at the same 
cost level at a 15-pct DCFROR. This emphasizes that the 
economic viability of most of the MEC phosphate mines and 
deposits is directly related to the required rate of return 
as perceived by the property owners. 

Annual 

Another way of illustrating phosphate availability is 
to disaggregate the total resource availability curve and 
show potential availability on an annual basis. This method 
provides information on maximum production capacities 
available in the near future at currently producing proper- 
ties and illustrates the lead times required before new pro- 
duction capacity can be added. 

The annual availability curves reflect the installed an- 
nual capacity at proposed or already-developed operations. 
The curves thus represent a maximum attainable output 



16 



100 



-kB- 





5 


10 15 


20 


2! 


1 


1 1 


1 


I 


- 


/ 


r 


- 


-J 






- 


i 


Middle East 


i 





1.2 



3 4 5 0.4 0.8 

TOTAL RECOVERABLE PHOSPHATE ROCK, I0 9 mt 
FIGURE 13. — Phosphate rock potentially recoverable from MEC mines and deposits (15-pct DCFROR). 



I.6 



2.0 



each year, assuming that all operations produce at full 
capacity. The decline in output levels shown for later years 
is a result of resource depletion at several deposits, again 
assuming that production (and resource depletion) occurs 
at capacity levels for all years and that there are no addi- 
tions to the resource base represented on the illustrations. 

Separate annual availability curves have been con- 
structed for producing and proposed operations. Annual 
availability is shown for producing mines in all MEC's and 
the following MEC regions: north Africa, the United States, 
and the Middle East. For undeveloped deposits, only one 
MEC curve was constructed. In order to show the maximum 
potential output from these deposits, development at all 
undeveloped deposits is presumed to begin in the same year 
(labeled "N"). The annual capacity (and cost) levels shown 
in the curve therefore reflect minimum required develop- 
ment times. 

Potential annual production of phosphate from MEC 
producing mines from 1985 to 2000 is shown in figure 16. 
The curves reflect the production capacity of existing mines, 
including publicly announced planned expansions when 
known. The curves shown in figure 16 (note that each curve 
is constructed at a different scale) illustrate that maximum 
potential production from producing mines in the United 
States could decline dramatically in the near future. The 
U.S. phosphate industry has been producing at much less 
than full capacity in recent years, however, so the decline 
in potential U.S. production from currently installed capac- 



ity shown on the curve will actually be delayed for several 
more years and the eventual decline could be more gradual 
than shown. Maximum production capacity from north 
Africa, in contrast, will continue to increase through 1987, 
whether production is at full-capacity levels or not. Poten- 
tial annual capacity in north Africa could decrease between 
1987 and 1993, but additional capacity expansions are 
scheduled after 1993. 

Table 8 shows the estimated annual production 
capacities, at different cost levels, at already -developed prop- 
erties for each producing country in 1987 and 1997. The 
production capacities at each cost level are the actual data 
used to construct the annual curves shown in figure 16. As 
shown in table 8, the estimated capacity for all mines in 
MEC's in 1987 is 139.8 million mt of phosphate rock at 
average total production costs ranging up to $75/mt (in- 
cluding a 15-pct DCFROR). This compares with actual pro- 
duction of 106.4 million mt of phosphate rock in 1985 (8), 
indicating a 76-pct MEC capacity utilization at 1985 pro- 
duction levels. The estimated capacity for the United States 
in 1987 of 67.1 million mt is significantly higher than 1985 
production of 50.8 million mt, a capacity utilization of about 
75 pet. 

Although not reported in the 1987 table, an additional 
1.3 million mt of phosphate rock could be produced from 
currently installed capacity at two mines with production 
costs over $75/mt. 

Table 8 also shows potential production of 107.6 million 



17 



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40 



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_l l_ 



1.5 2.0 2.5 3.0 3.5 



0.2 



0.4 



0.6 



0.8 



TOTAL RECOVERABLE PHOSPHATE ROCK, I0 9 mt 
FIGURE 14. — Phosphate rock potentially recoverable from MEC producing mines and nonproducing deposits (15-pct DCFROR). 



mt of phosphate rock (from already-developed properties) 
in 1997 at production costs ranging up to $75/mt. This 
number represents a minimum, as depletion at some prop- 
erties will likely occur at a lesser rate than full-capacity 
production levels each year. An interesting comparison 
shown on table 8 is the relative decline in potential pro- 
duction capacity at currently producing properties in the 
United States and Morocco and Western Sahara. The 







i i 






1 1 


i 

1 
1 

r 1 




80 


- 










) 


- 


E 








15- 


pet DCFROR 


1 ) 




lO 60 
CO 


- 








rT- 


< j 


- 


o 
<t 

h- 


i 


r r ~ 


y 


r 






- 


O 


f 


20 


i i 






\ 

0- pet DCFROR 






5 10 




15 


20 25 


30 


55 



TOTAL RECOVERABLE PHOSPHATE ROCK, I0 9 mt 

FIGURE 1 5. — Total MEC phosphate rock availability at 0- and 
15-pct DCFROR. 



United States shows a decline from 67.1 million mt in 1987 
to 40.7 million mt in 1997, as the demonstrated resources 
of several producing mines become exhausted. Morocco and 
Western Sahara, on the other hand, show a minor decrease, 
from 30.2 million in 1987 to 27.7 million mt in 1997. This 
reflects exhaustion of resources at two deposits in Morocco, 
partially balanced by capacity expansions at three other cur- 
rently producing operations. 

Potential production of phosphate rock in 1997 (from 
properties that are already in production as of January 
1985) at costs under $30/mt could decline to 32.2 million 
mt, compared with 64.1 million mt available in 1987. The 
U.S. share of this potential 1997 production capacity with 
costs under $30/mt would amount to 93 pet, while the 
Morocco and Western Saharan share would be zero. Of the 
44.8 million mt of phosphate that could be produced in 1997 
(from mines already in production in January 1985) at costs 
between $30/mt and $40/mt, however, the United States 
would account for only 17 pet and Morocco and Western 
Sahara would account for 50 pet. At estimated production 
costs between $40 and $50, a minimum of 16.1 million mt 
of phosphate rock could be produced in 1997, with the 
United States accounting for 19 pet and Morocco having 10 
pet of the potential production in this cost range. 

Some of the estimated decline of production capacity at 
producing mines in the United States would be delayed 
because of likely production at levels below full capacity. 
There could also be expansion of production capacities at 



18 



160 
140 
120 
100 
80 



V 



0-$75 



0-$50 v 




UJ 20 

< 
X 
0- 
<S) 

o 

X 



UJ 

_1 

GD 
< 

rr 

Ul 

> 

o 

UJ 




Market economy countries 
I I L 



60 



50 



40 



30- 



20- 



1 1 1 


~1 




0-$65 




_ 




0-$45 


^ 


0-$35 


^\^ 


North Africa 
i i i 1 



dU 

70 
60 
50 


1 1 1 1 

••. \ 
_ '•.. \ _ 


40 


~"^--- .'■-^^ 0-$50 

\ 0-$40 ■-.>^. - 


30 

20 

10 
n 


0-$30_ 

United States 
i i i i 



1985 



1988 



1991 



1994 



1997 




1988 



1991 



1994 



1997 



2000 1985 
YEAR 
FIGURE 16. — Potential annual production from MEC producing mines at various cost levels (15-pct DCFROR). 



2000 



some of the remaining producers that have large resources, 
although such expansions would effectively shorten produc- 
ing lives. If the United States is to maintain current levels 
of production capacity, it will likely have to be through the 
development of new mines, which in most cases will have 
higher total costs. 

The potential annual availability curves for all of the 
undeveloped MEC deposits included in the study are shown 
in figure 17. The annual curves for undeveloped deposits 
reflect the minimum required lead times before production 
can begin and show the potential production costs and 
potential annual capacities of the mines of the future. In 
these curves, all undeveloped deposits (with the exception 
of the mines that are currently under development) are 
assumed to begin preproduction development at the same 
time (a base year N). Consequently, the tonnage available 
in a given year is the maximum possible and unlikely to 
be realized since not all of the nonproducers will begin 
preproduction simultaneously. Mines that are already 
developing appear in the first couple of years, and then 
potential annual production increases dramatically as the 
other nonproducers begin to come on-stream in the year 
N+4 and beyond. 

A key factor that this curve highlights is the tonnage 
differential at the different total cost levels. For this 
analysis, it is assumed that all of the nonproducing deposits 
begin preproduction development in year N, and all prop- 



erties would be producing at full capacity by the year N+ 10 
(although some capacity expansions would continue to occur 
beyond that time). In this case, 118 million mt of phosphate 
rock could be produced in the year N+ 10 at production costs 
ranging up to $100/mt (an additional 30 million mt at 
estimated production costs greater than $100 is not shown 
on the curve). Of this amount, 2.5 million mt could be pro- 
duced at costs under $35/mt: 80 pet from the United States 



N Year preproduction 
development begins 




FIGURE 1 7. — Potential annual production from MEC develop- 
ing mines and explored deposits at various cost levels (15-pct 
DCFROR). 



Table 8.— Estimated potential annual production capacities for currently producing MEC mines, by country 

(Thousand metric tons of phosphate rock) 



19 



Region and country 



Cost, $/mt 
$1 1 .50 to $30 $30 to $40 $40 to $50 $50 to $60 $60 to $75 



Total 



1987 



North America: 

Mexico — 

United States 47,400 

South America: Brazil — 

North Africa: 

Algeria — 

Morocco and Western Sahara 10,000 

Tunisia — 

Other African countries: 

Senegal — 

South Africa, Republic of — 

Togo 3,200 

Zimbabwe — 

Middle East: 

Egypt — 

Iraq — 

Israel — 

Jordan — 

Syria — 

Turkey — 

Oceania: 

Australia 1 ,500 

Nauru 2,000 

Asia: India — 

Europe: Finland — 

Total 64,100 

North America: 

Mexico — 

United States 30,000 

South America: Brazil — 

North Africa: 

Algeria — 

Morocco and Western Sahara — 

Tunisia — 

Other African countries: 

Senegal — 

South Africa, Republic of — 

Togo 2,200 

Middle East: 

Egypt — 

Iraq — 

Israel — 

Jordan — 

Syria — 

Turkey — 

Asia: India — 

Europe: Finland — 

Total 32,200 

NOTE— Dashes indicate no production capacity within cost range. 

and none from Morocco. At production costs between $35/mt 
and $40/mt, 6.2 million mt of phosphate rock could be pro- 
duced: 44 pet from the United States, 32 pet from Morocco, 
and 24 pet from Togo. From $40/mt to $50/mt, 18.9 million 
mt of phosphate rock could be produced: 60 pet from the 
United States, 24 pet from Morocco, and 15 pet from Tunisia. 
At total production costs between $50/mt and $75/mt, an 
additional 67.7 million mt of phosphate could be produced, 
with 72 pet coming from the United States, 18 pet from 
Australia, 3 pet from Jordan, 3 pet from Israel, 2 pet from 
Tunisia, and 2 pet from Brazil. Of the 22.7 million mt that 
could be produced at costs ranging from $75/mt to $100/mt, 
78 pet would be from the United States, mainly from 
deposits in the West. 

The data underlying figure 17 are shown in table 9. The 
United States is predominant in the potential production 
of phosphate rock at costs under $50. Potential U.S. pro- 



800 
17,400 

200 



15,000 
1,700 



600 
3,200 



5,700 



2,300 


— 


— 


800 
67,100 


500 


600 


2,300 


3,600 


2,000 
1,600 
4,900 


— 


3,600 


2,000 

30,200 

6,600 


1,500 


- 


200 


2,100 

3,200 

3,200 

200 


2,500 
1,100 


100 

500 

800 
100 


1,200 
1,700 

1,600 


1,300 
1,700 
3,000 
6,800 
2,400 
100 


Z 


- 


- 


1,500 
2,000 


— 


1,500 


— 


1,500 


— 


— 


500 


500 



44,600 



16,400 



3,600 



11,100 



139,800 



1997 



800 
7,700 

2,000 
22,500 



600 
5,500 



5,700 



3,000 


— 


— 


800 
40,700 


500 


600 


3,100 


6,200 


2,000 
1,600 
3,400 


- 


3,600 


2,000 

27,700 

3,400 


1,500 


- 


— 


2,100 
5,500 
2,200 


3,000 
1,100 


100 

500 

800 
800 


1,200 
1,700 

800 


1,300 
1,700 
3,500 
6,800 
1,600 
800 


— 


800 


— 


800 


— 


— 


500 


500 



44,800 



16,100 



3,600 



10,900 



107,600 



duction in the year N+10 at $50/mt or less is 16 million 
mt, which is 58 pet of the total for all MEC's at that cost 
level. 

Based on the data presented in table 8, it appears the 
United States will have to invest in expansions and/or the 
development of new mines within the next few years in 
order to maintain or increase current production. In order 
to achieve production at the nearly full-capacity 1981 level 
of 54 million mt, 25 pet of production in 1997 would come 
from mines that have yet to be developed. 

Much of the potential tonnage shown in figure 17 for 
the year N+ 10 will not be required to meet future demand 
for a very long time. However, the U.S. phosphate industry 
in Florida will have to begin investing in the next few years 
to develop new deposits if it intends to maintain or expand 
upon current production levels. Over 70 pet of the phosphate 
from new mines in the United States that could be produced 



20 



Table 9.— Estimated potential annual production capacities for nonproducing deposits at average total production costs less 

than $100 per metric ton phosphate rock, by country, year N + 10 

(Thousand metric tons) 



Region and country $0 to $35 $35 to~$40~ 

North America: 

Canada 400 — 

Mexico — — 

United States 2,000 2,700 

South America: 

Brazil — — 

Colombia — — 

Venezuela — — 

North Africa: 

Morocco — 2,000 

Tunisia — — 

Other African countries: 

Angola — — 

Togo — 1 ,500 

Uganda 100 — 

Middle East: 

Israel — — 

Jordan — — 

Saudi Arabia — — 

Oceania: Australia — — 

Asia: Pakistan — — 

Total 2,500 6,200 

NOTE— Dashes indicate no production capacity within cost range. 



Cost, $/mt 



$40 to $50 



$50 to $75 $75 to $100 



Total 



1,300 


48,600 


1,200 
17,800 


400 

1,200 

82,400 





1,400 


500 
100 
400 


1,900 
100 
400 


4,500 
2,900 


1,500 


— 


6,500 
4,400 





200 


— 


200 

1,500 

100 


— 


2,000 
2,000 


2,500 


2,000 
2,000 
2,500 


200 


12,000 


— 


12,200 


— 


— 


200 


200 



18,900 



67,700 



22,700 



118,000 



for under $50/mt would cost in the $40 to $50 range, 
whereas most phosphate rock in Morocco from existing 
mines can be produced for under $40/mt. 

There are numerous factors, however, that could 
enhance the outlook for phosphate availability from the 
United States, particularly over the long run. In addition 
to the demonstrated resources evaluated in this study for 
the United States, an estimated 7 billion mt of potentially 
recoverable phosphate rock exists at the inferred level (over 
80 pet is in the Southeast), and over 24 billion mt of poten- 
tially recoverable phosphate rock exists at the hypothetical 
resource level (over 60 pet in the Southeast). 6 

New deposits will likely be discovered (particularly off- 
shore deposits along the eastern seaboard); low-grade 
material could become economic to mine and beneficiate; 
or technological advances could enable the processing of 
high magnesium oxide material or the mining of deep 
deposits by the borehole mining technique. Any of these fac- 
tors could greatly increase the amount of phosphate 
available in the future, both within and outside the United 
States. 

Of immediate interest to the U.S. phosphate industry 
is more than 2 billion mt of recoverable phosphate rock in 
Florida at the identified resource level that contains high 
magnesium oxide material and is presently considered 
unacceptable by the industry owing to the higher beneficia- 
tion costs of producing an acceptable phosphoric acid plant 
feed. Given the progress several phosphate companies and 
the Bureau have made in developing beneficiation 
technologies to lower the grade of magnesium oxide in the 
phosphate rock product, this additional 2 billion mt of 
phosphate rock could become available in the near future, 
but at a higher cost. 



SUPPLY 



' See appendix D for definition of resource classification terms. 



An economic model functions as a framework of 
analysis, which provides a measure against which to 
observe the real world. In its systemization, a model pro- 
vides a consistent, reproducible audit trail from problem 
statement to conclusion. This being the case, even 
recognizably wrong conclusions benefit the analyses; results 
that are not intuitively appealing to the expert analyst must 
lead to the reevaluation of assumptions on which an 
analysis is based. Information learned from such reevalua- 
tion leads to refined understanding of the functioning of the 
minerals industry system, which after all is a more fun- 
damental objective of the modeling effort than the solution 
of a limited number of specific problems. Absent the model, 
no such basis for improving understanding exists. 

Toward this end, a three-part analytical framework has 
been developed, consisting of data analysis tools and two 
complementary economic models. The first application of 
these models to mineral market analysis is in the phosphate 
industry. The two perspectives provided are an aggregate 
outlook for the market in the medium to long term (market 
balance model), and a detailed, single-year analysis of the 
relative competitive positions of different suppliers of 
phosphate rock and phosphoric acid into each of the major 
consuming regions (network flow model). 

Current Market Analysis 

Model simulations for the 1981-85 period were used to 
examine the current markets for phosphate rock and 
phosphoric acid. Results from each of the models suggest 
that the least cost criteria (i.e., production coming from prop- 
erties that have the lowest costs) lead to a reasonably ac- 
curate estimate of the allocation of production by region and 
that world trade flows can also be closely replicated based 
on least cost criteria. Solution values for "price" in the 



21 



market balance model simulation and "delivered cost" in 
the network flow model provide further evidence of the 
difficult financial position of many of the major producers, 
particularly in the United States. The model results also 
suggest reasons for the current production levels and trade 
patterns. 



Historical Period Simulation Results 

Table 10 shows the supply-side results of a historical 
period simulation using the market balance model. Quan- 
tities identified as "Actual value" are those taken from the 
1984 Minerals Yearbook (MY) (7) and the 1986 Mineral 
Commodity Summaries (MCS) (20). These reported values 
are shown for each of the years 1981-85, along with 
simulated values for each of those years and the percent- 
age difference between the two values. Production for 
CPEC's was not modeled. 

The percentage differences between simulated and 
reported production levels are very small for almost all the 
principal producing MEC's for all the years. This indicates 
that the hierarchy of estimated cost levels for MEC deposits 
is adequate and that a simple competitive model is a respon- 
sible assumption about market behavior. It is also apparent 
that the Bureau's deposit data base shows more than suffi- 
cient production capacity to account for the reported out- 
put levels in every year for every major MEC. 

A discussion of some of the larger differences in table 
10 will highlight several features of the model. As an ex- 
ample, Jordan was expanding production capacity in the 
early 1980's. The market balance model depends on 
estimates of rated production capacity. However, rated 
capacity may be larger than actual production in the early 
years of a development or expansion because of the logistical 
difficulty of bringing everything together in an efficient con- 
tinuous operation. 

As a second example, the "Other MEC's" category, 



representing a mix of smaller producing countries, shows 
larger percentage differences than the major producers. This 
is because many of the smaller producers service a local 
market and enjoy a cost advantage in that market (which 
cannot be easily represented in the market balance model). 
A principal example of this is Brazil, with several deposits 
that seemingly have higher costs than other producing 
deposits. Brazil's large local market is able to absorb all 
local production; therefore, in model simulation, Brazilian 
deposits are all specified with minimum production levels 
so that their higher cost levels do not result in simulated 
property shutdowns. 

The values for "Total world" production show dif- 
ferences of 2 to 4 pet in each year. There are two reasons 
why the value is nonzero. First is the "lumpiness" problem: 
i.e., properties are either producing at full capacity or 
presumed shut down. Many of these properties are large 
enough to make up more than 1 pet of the market. The 
second reason for nonzero differences in the total relates 
to the convergence criteria for price. If several properties 
have cost levels that are very close together, then the 
simulation effectively treats those properties as a unit and 
in successive iterations they will be simulated as produc- 
ing or shut down in a block, compounding the lumpiness 
problem just described. 

Table 11 reports the "prices" resulting from simulation 
and illustrates that these values must be interpreted with 
care. The price level solved for during a simulation equals 
the average variable cost of the producer with the highest 
cost. As such, it might be interpreted as a likely minimum 
price in a competitive market. The numbers in table 11 rein- 
force that idea. The solution (simulated) values for price in 
1981 and 1982 are substantially below the actual (reported 
average) values. This indicates that most producers able to 
sell their product were getting a reasonable margin over 
operating costs. In 1983 and 1984, however, the higher cost 
producers were probably only barely covering those costs, 
and in 1985 the highest cost producers may even have been 



Table 10.— Estimated 1 and reported 2 MEC production, 1981-85 

(Thousand metric tons of P 2 5 ) 

1981 1981 

Country Actual Model Difference, Actual Model Difference 

value result pet value result pet 

Israel 624 670 +7 698 695 6 

Jordan 1,379 1,603 +16 1,427 1,521 +7 

Morocco 5,958 6,075 +2 5,700 6,266 +10 

Tunisia 1,287 1,416 +10 1,213 1,145 -6 

United States 16,365 15,642 -4 11,504 12,284 +7 

Other MEC's 5,730 6,686 +17 6,070 5,634 -7 

Total MEC's 3 . 
Total CPEC's". 

Total world 

Israel 995 875 -12 1,050 881 -14 

Jordan 2,042 2,059 +1 2,282 2,075 -9 

Morocco 6,762 6,968 +3 7,307 7,650 +5 

Tunisia 1,554 1,806 +16 1,744 1,819 +4 

United States 14,889 15,173 +2 15,435 16,745 +8 

Other MEC's 5,940 6,832 +15 7,206 6,893 -4 

Total MEC's 3 32,182 33,716 +5 35,024 36,067 +3 

Total CPEC's" 12,960 12,960 13,650 13,650 

Total world 45,142 46,676 +3 48,674 49,717 +2 

1 Using the market balance model. 

2 Stowasser (7, 20). 

3 Data may not add to totals shown because of independent rounding. 

"Not modeled. 



1983 



Actual 


Model 


Difference, 


value 


result 


pet 


892 


849 


-5 


1,548 


1,795 


+ 16 


6,400 


6,686 


+ 4 


1,700 


1,750 


+ 3 


13,088 


13,650 


+ 4 


5,995 


6,557 


+ 9 



31,343 
1 1 ,620 


32,094 
11,620 


+2 



26,612 
12,080 


27,548 
12,080 


+ 3 



29,623 
12,380 


31,288 
12,380 


+ 6 



42,963 


43,714 


+ 2 


38,692 


39,628 


+2 


42,003 


43,668 


+ 4 




1984 






1985 






Average 

absolute 

difference, pet 




Actual 
value 


Model 
result 


Difference, 
pet 


Actual 
value 


Model 
result 


Difference, 
pet 





7 
10 
5 
8 
5 
10 



22 



losing money. The reported shutdowns in those latter years 
are evidence of the poor market being faced by producers 
worldwide. 

Table 11.— Annual average price of phosphate rock, 1981-85 

(Dollars per metric ton of phosphate rock) 

Reported Reported Simulated 

Year nominal S 1 constant 1985 $ 2 constant 1985 $ 3 

1981 26.63 28.33 21.73 

1982 25.50 26.56 18.62 

1983 23.97 24.59 24.02 

1984 23.99 23.99 24.11 

1985 23.50 23.50 25.42 

'As reported f.o.b. mine basis in Stowasser (20). 
2 Nominal dollar value converted to Jan. 1985 dollars. 
3 Balance model simulation results. 

Results from a network flow model simulation for the 
base year of 1984 reinforce the idea that high-cost producers 
may have been operating at a loss. Table 12 shows the pro- 
duction level results of the base year simulation. As with 
the market balance model, quantities identified as "Actual 
value" are taken from the MY (7). To the right of these 
values are listed the model results for each country or region 
and the percentage difference between the two. The 
weighted average difference in table 12 is calculated from 
weights based on actual production levels in 1984. At 5.2 
pet, the overall error appears acceptable. Certain specific 
results, however, deserve consideration. 

Table 12.— Estimated 1 and reported 2 MEC phosphate rock 
production in selected regions, 1984 

(Thousand metric tons of P 2 5 ) 

Actual Model Difference, 

Country value result pet 

Israel 995 978 -1.7 

Jordan 2,042 2,062 +1.0 

Morocco 6,762 5,990 - 1 1 .4 

Tunisia 1 ,554 1 ,235 -20.5 

United States 14,889 14,490 -2.7 

Other MEC's 3 5,940 6,355 +7.0 

Weighted average 
difference 5.2 

1 Network flow model simulation results. 
2 Stowasser (7). 

3 Other MEC's: Algeria, Brazil, Christmas Island, Egypt, Finland, India, Iraq, 
Mexico, Nauru, Senegal, Republic of South Africa, Syria, Togo, Zimbabwe. 

The results from the model simulation showed Morocco 
producing 11.4 pet less P 2 5 in 1984 than it reported having 
produced. These results would indicate that the relatively 
higher cost for mining, beneficiation, transportation, and 
acidulation of Moroccan phosphate materials was not a con- 
straint on production and exports (as evidenced by the high 
reported values). Keep in mind that the network flow model 
attempts to fulfill demand from the lowest cost sources 
available systemwide. 

One possible explanation for these results is that 
Morocco is attempting to capture unpriced social benefits 
of higher production levels. Morocco can send its lower 
quality phosphate rock to the state-owned Office Cherifien 
des Phosphates (OCP) phosphoric acid plants, reserving 
higher grade and/or quality phosphate rock for export as 
is. Once the lower quality phosphate rock is processed into 
phosphoric acid or phosphate fertilizers, its competitive 
disadvantage with regard to grade and/or quality is re- 
moved. To the degree that Morocco can market a greater 
level of total product in this manner without drastically 
affecting net profit, the country may be able to rationalize 
production on a basis of net social benefits. Other countries, 



including the United States, may also behave in this fashion 
given the proper incentives. 

This concept is illustrated in figure 18, where the quan- 
tity of P 2 5 produced (Q) is graphed against cost (C). Supply 
is assumed equal to the sum of the individual deposit 
marginal cost curves (at or above average variable cost) for 
all producers in any given country. D represents the market 
demand curve for P 2 5 faced by the producers and equals 
marginal private benefits (MPB). Equilibrium price and 
quantity are at C , Q . (These are normally sloped curves 
because of the laws of diminishing marginal utility and 
diminishing marginal returns.) 







KEY 






Do.Di 


Demond curves 






. MPB 


Marginal private benefits 






\. MSB 


Marginal social benefits 






\\ S 


Supply curve 




o 

0_ 




y% 




E 








in L " 

CO 














1- MX 

in 
o 
o 










D (MPB) 

H 1 1 


D|(W 
1 



Q 0, 

QUANTITY, I0 6 mt P 2 5 



FIGURE 18. 
benefits. 



— Supply and demand incorporating social 



Consider a scenario in which production of P 2 5 
generates positive externalities in the producing country, 
i.e., benefits not reflected in prices and therefore external 
to those prices. Demand curve D 1; which lies above D by 
a distance equal to the external benefits, represents 
marginal social benefits (MSB). The new equilibrium is at 

This implies a higher rate of production than C„, Q , the 
difference representing the increase in output necessary to 
capture the net social benefits of production. These benefits 
could include increased employment, foreign exchange earn- 
ing, social stability, and enhanced opportunities for infra- 
structure development in remote regions. A strictly cost- 
based model, such as the network flow model, would not 
incorporate these nonprice issues into an optimal solution. 
The result would be underestimation of the level of produc- 
tion. This may be what happened in the base case simula- 
tion, since Morocco actually produced 11.4 pet more than 
the straight cost-based optimization suggests it would. 

Similarly, the network flow model predicts that Tunisia 
would produce 20.5 pet less P 2 O s in 1984 than was reported 
to have been produced. The marginal social benefits to 
Tunisia of increased production may well outweigh the 
costs. These costs might be absorbed as lower profit levels. 
It is interesting to note that Tunisia experienced low ex- 
port levels prior to the development of the phosphoric acid 
and fertilizer complexes at Gabes and Sfax. Since that time, 
exports have increased markedly, perhaps indicating that 
(in select markets) Tunisia has been able to capture the 
value added to phosphate rock by acidulation. 

It is frequently suggested that there is a move toward 
forward vertical integration in the phosphate industry, the 
development of secondary or final processing facilities so 
that firms or countries can capture the value-added profit 
from their primary resources. A country producing 



23 



phosphate may be relatively more competitive in interna- 
tional acid and fertilizer markets than in international 
phosphate rock markets, particularly if phosphoric acid is 
produced at or relatively near the phosphate mine and mill 
complex or if some ore is difficult to market because of poor 
quality. The results in the report suggest that in many in- 
stances this is, in fact, the case. Certainly it would appear 
to be so for Morocco and Tunisia. 

Another example of the benefits of forward integration 
is suggested by a sensitivity analysis of the P 2 5 industry 
of Senegal. This country anticipates producing approxi- 
mately 700,000 mt of P 2 5 by 1987. The network flow model 
predicts production of 655,000 mt of phosphate as rock as 
early as 1984, based on the relative competitiveness of 
phosphate rock in export markets. Even so, when the op- 
portunity for increased domestic phosphoric acid production 
is introduced into the network flow model, the phosphate 
rock is directed to phosphoric acid plants and phosporic acid 
rather than phosphate rock is the product exported in the 
optimal solution. This would appear to support the sugges- 
tion that value-added benefits of producing phosphoric acid 
can be captured by phosphate-rock-producing countries if 
the opportunity (i.e., plant capacity) is available. Phosphoric 
acid produced near the mine will often be relatively more 
cost competitive than phosphoric acid produced at locations 
remote from the mine. 

One possible explanation for the move toward produc- 
ing higher value-added products is that freight costs in 
terms of dollars per metric ton of contained P 2 5 are lower 
for phosphoric acid than they are for phosphate rock. Hence, 
it is more cost effective to ship phosphoric acid and other 
processed phosphate fertilizers. Many countries currently 
producing only phosphate rock perceive this opportunity, 
and as a result, more are moving or plan to move into 
phosphoric acid and fertilizer production. 

Given that the market supply curve is equal to the 
horizontal summation of all individual supply curves, an 
increase in the number of acid and/or fertilizer producers 
will, by definition, shift the market supply curve away from 
the origin. Assuming that demand is elastic in the long run, 7 
price will drop relative to what it would have been had new 
suppliers not come on-line. Economic profits currently 
earned in the phosphoric acid market could be competed 
away. 

This does not bode well for high-cost phosphoric acid and 
fertilizer exporters. To the degree that market price is above 
a firm's average total cost (ATC), economic profits can be 
earned. However, if market price drops below the ATC, the 
firm will lose money. If this situation continues for a long 
enough period of time, high-cost producers will be forced 
out of the market. Conversely, firms capable of shifting their 
cost curves down (through increases in productivity or shift- 
ing of costs to other segments of the economy) would con- 
tinue to be competitive in international markets 
characterized by decreasing relative price. 

Results supporting the efficiency of forward integration 
are tempered by another very important factor, the cost of 
sulfuric acid. Sulfur represents approximately 80 pet of the 
non-phosphate-rock costs of merchant-grade phosphoric 
acid 8 in MEC's. Obviously, the cost of sulfur has an enor- 
mous impact on the relative competitive status of 
phosphoric acid producers. In fact, availability of low-cost 



7 "Long run" is a conceptual period of time in which all inputs except 
technology are variable; i.e., the only fixed variable in the production func- 
tion is technology. 

9 Calculated in terms of contained P 2 5 in acid. 



sulfur appears to be almost as important as availability of 
low-cost phosphate rock in determining the competitive 
status of phosphoric acid output. 

For example, the Republic of Korea, Japan, and Spain 
all import phosphate rock; none have phosphate reserves. 
Yet all are successful exporters of value-added phosphate 
products. The data suggest that relatively low-cost sulfur 
may be an important factor in this success. Spain has high- 
grade pyrite deposits located in the same geographic region 
as the phosphoric acid plants. The production capacity of 
the pyrite deposits is far in excess of the quantities of sulfur 
required by the phosphate industry. Spain also produces 
byproduct sulfur from metallurgical plants. Japan produces 
over 2 million mt of byproduct sulfur per year as well as 
importing sulfur as solid brimstone and sulfuric acid. Japan 
acts as an exporter of sulfur products. The Republic of Korea 
imports both elemental sulfur (native and byproduct) and 
sulfuric acid, with Canada (elemental) and Japan (elemen- 
tal and sulfuric acid) as major suppliers. 

Sulfur costs used in the network flow model for 
phosphoric acid plants in the Republic of Korea and Japan 
are 20 to 30 pet below those used for southeast U.S. and 
Moroccan phosphoric acid producers. Sulfur cost in Spain 
is less than half that in the United States or Morocco. Using 
these cost numbers, phosphoric acid produced and sold in 
Japan and the Republic of Korea appears to be competitive 
in Asian markets with phosphoric acid imported from the 
United States or Morocco. This is particularly true in those 
instances where Japan and the Republic of Korea use low- 
cost phosphate rock from Nauru or Christmas Island. 

One inference that can be drawn from these results is 
that there are advantages to be gained from vertical integra- 
tion. In those instances where a particularly low-cost sulfur 
source is available, there appear to be benefits to backward 
vertical integration— the development of processing 
facilities and the importation of a primary commodity to 
complement the natural advantages a country may have 
with regard to other inputs required for production of a final 
product. 

Consider Spain as an example. The Spanish started ex- 
tracting their pyrite deposits when Sicilian sulfur was 
depleted (1800's) and in the ensuing years have developed 
an extensive sulfur industry. The Bou Craa phosphate 
deposits in the Spanish (Western) Sahara were discovered 
by Spain in 1947 and were developed by Empresa National 
del Sahara, with production beginning in 1972. Phosphate 
rock was shipped to Huelva, Spain, a port near the Spanish 
pyrite deposits. The Spanish Sahara was taken over in 1975 
by Morocco and Mauritania, but phosphates were so sensi- 
tive an issue politically that Morocco guaranteed the supply 
of raw phosphates to Spain. Morocco continues to ship 
phosphate rock to Huelva, 2.6 million mt of rock in 1984. 
Further, Spain is a major exporter of wet-process phosphoric 
acid, (93,400 mt contained P 2 5 in 1984) and ammonium 
phosphates (48,400 mt contained P 2 5 in 1984). This situa- 
tion would appear to be an example of successful backward 
integration, even though the mine and benefication plants 
are no longer controlled by the Spanish. 

Another apparent example of backward integration is 
the development of phosphoric acid and fertilizer facilities 
in Wyoming. Chevron Chemical Co. has built a large sour- 
gas plant at Rock Springs, WY, to scrub sour gas (remove 
the sulfur). As a result, Chevron has a continuous source 
of byproduct sulfur that is relatively low cost compared with 
Frasch sulfur, and which must be disposed of in some 
manner. Chevron has purchased the Vernal phosphate mine 



24 



at Vernal, UT, built a slurry pipeline from Vernal to Rock 
Springs, and built acidulation facilities at Rock Springs. 
Chevron now produces, at a competitive cost, phosphoric 
acid and acid-based fertilizer products. Assuming that the 
original intention was to enhance the market value of 
natural gas rather than to provide a sulfur source, this 
would appear to be another instance of successful backward 
integration. 

The network flow model predicts a higher level of pro- 
duction in "Other MEC's" than was reported to have 
occurred in 1984 (table 12). It has been suggested that many 
properties in remote regions produce for strictly local 
markets. To replicate this market scenario, the network was 
designed to allow mines in many "Other MEC's" to feed 
local markets with no transportation cost. Little cost infor- 
mation is available on intracountry distribution of 
phosphate products. While the assumption of no-cost 
distribution may be somewhat unrealistic, it is reasonable 
to assume that phosphate products produced locally are sold 
in local markets as well as exported. 

The result of this design feature is a higher level of 
predicted phosphate production in countries serving local 
markets over no-cost distribution paths (zero-cost arcs). 
Mathematically, this occurs because low-cost paths will 
always be chosen over high-cost paths, and producers with 
the opportunity to ship over zero-cost arcs will be more 
likely to produce, other things being equal, than producers 
with costed transportation arcs. 

Current Trade Patterns and Delivered Costs 

A feasible set of trade flows can be derived from the solu- 
tion to the network flow model. The model identifies the 
mines and mills from which phosphate flows into each of 
the fertilizer-consuming regions. The optimal solution to 
the network flow model can be fed into a transportation 
algorithm (described in appendix E). The output from this 
program is a set of feasible paths from mines to final 
demand regions (nodes), consistent with the flows allowed 
in the optimal cost-minimization solution. The cost of the 
most expensive path to a final demand node can be con- 
sidered a proxy for marginal cost at that demand node. The 
marginal costs at each MEC phosphoric acid demand node 
are listed in table 13. 

Table 13.— Estimated marginal costs of delivered phosphoric 
acid, by region, 1984 (constrained network model) 

(January 1985 dollars per metric ton) 

Marginal cost of 
Demand region'' delivered acid product 

North America: 

Canada $370 

United States 366 

South America 382 

Africa 410 

Western Europe 433 

Asia 473 



1 Eastern Europe and U.S.S.R. acid demand not shown, as reliable cost data 
are unavailable. 

Marginal cost of delivered phosphoric acid is similar 
throughout the Western Hemisphere, with U.S. and Cana- 
dian costs differing by less than 2 pet. The average of North 
American (U.S. and Canadian) costs, $368, differs from the 
South American delivered cost by less than 4 pet at the 
margin. Costs may be consistent as a result of available 
relatively high-quality deposits of phosphate ore in the 



United States and Brazil and the availability of sulfur in 
the United States, Canada, and Latin America. 

Not surprisingly, delivered cost is higher in Western 
Europe than in the Western Hemisphere. This may result 
from the fact that the majority of phosphate rock used in 
acidulation is imported. The marginal cost for delivered 
phosphoric acid products in Africa is also higher than the 
price in the Western Hemisphere. This may result from two 
factors. First, little product appears to be imported to the 
African continent, based on International Fertilizer In- 
dustry Association (IF A) trade data (14). If this is the case, 
foreign suppliers with costs below those of the marginal sup- 
plier may have been excluded from the market. Second, 
African producers may be exporting their lower cost prod- 
uct to maximize foreign exchange earnings, leaving higher 
cost output to fulfill regional demand. In other words, some 
of the African product is high cost, but may be intended for 
local markets. 

The highest marginal delivered cost for phosphoric acid 
products, according to the model, is in Asia. This is not an 
unreasonable result given the physical distance between 
east Asia and most exporters of phosphate rock and 
phosphoric acid (other than Japan and the Republic of 
Korea). The results from the transportation algorithm can 
also be presented as a graph of cumulative delivered product 
versus delivered cost. Each step on the curves in figure 19 
corresponds to a unique path to a specific demand region. 
All of the paths to each demand region are shown in increas- 
ing cost order. 




United States 



25 50 75 

DELIVERED ACID PRODUCTS, pet of total 



100 



FIGURE 19. — Delivered cost of phosphoric acid to selected 
regions, 1984. 

The position of the curves in figure 19 reinforce the con- 
clusions drawn from the data on marginal costs presented 
in table 13. Phosphate products can be delivered at lower 
cost to U.S. consumers than they can be to either Western 
Europe or Asia, and they can be delivered at lower cost to 
Western Europe than to Asia. The median-cost suppliers 
of phosphoric acid products to Asia have costs higher than 
the median delivered costs to Western Europe or the United 
States. The existence of this broad, relatively flat, middle 
range (from 25 to 75 pet of delivered product) for all regions 
indicates that these markets have a large number of sup- 
pliers with similar levels of delivered cost and indicates 
relatively competitive markets. Even producers with the 
lowest delivered costs (the first quartile) do not appear to 
incur costs substantially below the median. 



25 



Natural Markets 

The network flow model is useful in identifying the 
natural export markets for each supplier of phosphate rock 
and phosphoric acid. A natural export market is one in 
which the supplier has the capability to deliver the product 
at a cost below that of other potential suppliers. The base 
case of the phosphate network flow model incorporates 
numerous constraints that reflect current market condi- 
tions, such as known contracts or traditional trading pat- 
terns. To ascertain natural markets, all constraints other 
than capacities have been removed and the model reopti- 
mized on a strictly cost-minimizing basis. The results do 
not necessarily reflect actual trading patterns but suggest 
those markets in which an exporter would be most com- 
petitive on a cost basis alone. 

One of the interesting results of the simulation is that 
Tunisia appears to have natural markets for phosphoric acid 
rather than for phosphate rock. This is consistent with 
previously mentioned model results and Tunisia's recent 
moves toward adding more phosphoric acid capacity. This 
would appear to be true for the Republic of South Africa 
also. Results for Senegal and Morocco indicate they have 
natural markets for both products. Algeria, conversely, has 
no natural markets, which may be why Algerian exports 
flow mostly to CPEC markets, where free market forces are 
less important. Jordan's natural markets are for phosphate 
rock only, as are Israel's. 

Natural markets for U.S. phosphate rock producers 
occur in Western Europe, Asia, Canada, and South America. 
Natural markets for U.S. phosphoric acid cover these same 
regions. U.S. producers appear to be competitive with other 
producers in most major markets in the world. To the degree 
that one or more competitors are willing to supply product 
below cost in certain export markets, however, U.S. pro- 
ducers (who must cover their costs to remain in business) 
will be at a disadvantage. 

Supply Curves 

World Phosphate Rock Supply 

The market balance model solution is in terms of a 
worldwide balance for P 2 5 contained in phosphate rock. 
The relevant supply curve is a step function that is an 
aggregation of individual deposit curves. It has as many 
steps as there are developed deposits (those capable of sup- 
plying phosphate rock to the market in the current time 
period). Each step is located at the level of a mine's average 
variable costs and has a horizontal distance equal to annual 
production capacity. Average variable costs include 
transportation to a port or to a phosphoric acid plant. 

Figure 20 is a representation of the world phosphate 
rock supply curve for 1985. The steps are further aggrega- 
tions of the deposit data so as to disguise individual com- 
pany data. Almost 14 million mt is shown as available with 
no associated cost, representing supply available from 
CPEC deposits and small deposits not individually 
represented in the data base. The reported level of world 
consumption has been superimposed on the curve, as has 
the reported U.S. average price for phosphate rock. The costs 
for non-U. S. deposits have been adjusted to account for the 
historical average differences between the U.S. gulf coast 
price of phosphate rock and the Casablanca price of 
phosphate rock (see appendix E for a complete explanation). 



The equilibrium price from the market balance model 
base case simulation is $82.15/mt of P 2 5 in phosphate rock, 
slightly higher than the 1985 reported price. (This same 
value was reported earlier in table 1 1 in terms of dollars 
per metric ton of phosphate rock product.) The conclusion 
to be drawn from this is that some producers may be losing 
money on a cash- (average variable) cost basis. 



5 '" 


IstQUARTILE 


2dQUARTILE 3d QUARTILE 


4th QUARTILE J 


0- 






J^ 


^_ 










E 










\ 100 


- 






- 


m 








oo 




1 




on 




Average 1985 U.S. price 




h-- 75 


" 






r 1 ^ 


in 










O 










o 








: !P 


UJ 








' o ~ 


03 50 
< 


- 














:co a. 


DC 




J 




:cn E 


< 




r- 1 




■ 3 


> 








i ;-o io 


UJ 25 








: 4- o 


<3 








: o° 


< 








. a. 


DC 

U 








. a) 

:rr 


£ n 








• 



28 



42 



FIGURE 20. — World phosphate rock supply, 1985 

Another conclusion that can be drawn from figure 20 
is that there exists a lot of additional production capacity 
at only slightly higher costs. That is, moderate increases 
in demand can be met by increased production from deposits 
with costs similar to the current highest cost producing 
properties. Although the mechanics of actual price deter- 
mination are far more complex than can be represented in 
the market balance model, the implication of these results 
is that price would not have to rise much to elicit more out- 
put from already-developed properties. 

Results from a base case projection, presented in the 
next section, will address this same point. The pace of 
resource depletion at currently producing properties and 
development of new capacity at currently undeveloped 
properties will be highlighted for different projected rates 
of growth in demand. The cost levels at likely producing 
properties in each future year will suggest when and how 
much price will likely have to rise in order to cover average 
variable costs. 



Regional Phosphoric Acid Supply 

Supply curves for phosphoric acid in various regions can 
be derived from solutions of the network flow model. (See 
appendix E for an explanation of their derivation.) These 
curves show the amounts of phosphoric acid that can be 
delivered to a particular region at different levels of 
delivered cost. All quantities are in metric tons of P 2 5 con- 
tained in phosphoric acid. This product represents demand 
for all fertilizer products (21). 

Figures 21, 22, and 23 depict the phosphoric acid supply 
curves for the United States, Western Europe, and Asia for 
the base year of 1984. The general conclusion drawn from 
the worldwide supply curve for phosphate rock (fig. 20) is 
reinforced by the shape of these regional supply curves for 
fertilizers. Supply is relatively elastic. That is, moderate 
increases in demand in any of the regions can be satisfied 
with material from suppliers who have only slightly higher 
costs than the operations that are producing in the 
simulation. 



26 



400 




3.B 
PHOSPHORIC ACID, 10 6 mt P, S 



FIGURE 21 
States, 1984. 



— Short-run supply of phosphoric acid, United 



o 


















X 


Q_ 




















4-J 




















E= 




















-4U0- 




















IT) 




















CD 




















cn 




















* H 




















r— " 








































o 




















CJ 














K 






S 300- 












* 








<x 




















LU 




















> 








































_J 




















UJ 




















?nn- 





















3.5 



4.5 



5.5 



FIGURE 22. — Short-run supply of phosphoric acid, Western 
Europe, 1984. 




FIGURE 23. — Short-run supply of phosphoric acid, Asia, 1984. 

These results indicate that it is not just phosphate rock 
production capacity that is in excess over current require- 
ments. There is also an excess of phosphoric acid capacity. 
This situation means there is currently a competitive 
market in all regions, with a large number of potential 



suppliers vying for market shares. The near-term outlook 
for phosphate producers is not good either, with several of 
the major producing countries indicating a desire to expand 
phosphoric acid and fertilizer production facilities in an 
effort to capture the benefits from marketing higher-value- 
added products. 

Projection Period Analyses 

A base case simulation was performed with the market 
balance model for the period 1985-2000, incorporating the 
definitional supply curve and all of the supply-side logic 
discussed earlier, but using a predetermined constant- 
percentage increase in demand. Results for an intermediate 
year (1995) have been fed into the network flow model, and 
an analysis of the relative competitive positions of the likely 
suppliers in that year was performed also. Both sets of 
results are examined in this section. 

Base Case Analysis to the Year 2000 

Total world demand begins at the 1985 value reported 
in MCS (20) and grows at 3 pct/yr. This growth rate in 
demand was used in the base case projection because it 
results in annual world demand equal to approximately the 
low end of the range for the year 2000 projection contained 
in reference 11, after converting that number to P 2 5 con- 
tent and accounting for processing and handling losses that 
are not already taken care of by the data development and 
availability methodologies. 

The supply values in the simulation reflect production 
from demonstrated resources at properties that either have 
installed capacity or are likely to develop production capa- 
city over that period. Production from CPEC's is presumed 
to grow at 3.2 pct/yr, a continuation of the trend observed 
over the past 10 yr. The supply total each year is forced by 
the model logic to be equal to demand each year (within 
the algorithm's convergence criteria), after adjustments for 
recoveries and P 2 5 content. 

Table 14 addresses the question of adequacy of supply 
over the entire forecast period from already-developed 
properties. It shows projected demand levels each year and 
the shortfall in supply* that would occur if no new property 
development were to take place. The phosphate rock short- 
falls presume all available properties can produce at capac- 
ity each year; downtime or closures at any property could 

Table 14.— Adequacy of supply from current producers 

(Thousand metric tons of P 2 5 ) 



Demand 1 Phosphate rock shortfall 

Year (3-pct/yr No Announced 

growth) expansion expansion 

allowed occurs 

1985 49,663 6 

1986 51,154 

1987 52,688 

1988 54,269 

1989 55,897 

1990 57,574 

1991 59,301 2,751 

1992 61,080 7,524 2,338 

1993 62,912 11,930 5,797 

1994 64,799 13,607 7,093 

1995 66,744 14,986 7,476 

1996 68,746 19,208 11,296 

1997 70,808 22,906 15,248 

1998 72,933 25,936 18,632 

1999 75,120 29,330 22,043 

2000 77,375 33,228 25,851 

Source for base year demand value: Stowasser {11). 



27 



make the shortfall larger. The shortfall numbers do not 
allow for adjustments in demand that would inevitably 
occur if a shortage of product actually happened but rather 
are meant to highlight growth in the market and depletion 
of resources over time and to indicate the need for expan- 
sions or new property development. 

Column 2 in table 14 shows annual total world demand 
for phosphate rock under an assumption that demand grows 
at 3 pct/yr. This value has already been adjusted to account 
for processing and handling losses but assumes no change 
in inventory levels from the present. The third and fourth 
columns illustrate the supply shortfall that would occur if 
no new property development happens. Column 3 contains 
the values from the simulation in which no expansion is 
allowed at currently producing properties, in addition to no 
new development. Column 4 assumes that announced 
expansions at several properties (e.g., Meraa El Arech in 
Morocco, Patos de Minas in Brazil, and Palabora in the 
Republic of South Africa) occur, but no new properties 
developed. 

Capacity at already-developed properties is sufficient 
to satisfy projected demand through the year 1990. By 1991, 
however, resource depletion and demand growth lead to a 
shortfall in production of 2.8 million mt of P 2 5 in phosphate 
rock that must be made up from new property development 
or expansion at already-developed properties. The amount 
of the shortfall grows each year until, by the year 2000, 
about 33 million mt of P 2 5 in phosphate rock have to be 
obtained from somewhere other than already-developed 
capacity at current producers. 

If already-announced expansion plans are presumed to 
occur, the shortfall in supply would not begin until 1991, 
and in the year 2000 the shortfall is less but still almost 
26 million mt. These values represent minimum amounts 
of new production capacity that must be developed if de- 
mand grows at 3 pct/yr, assuming planned expansions occur. 

More than a third of the reduction in production capacity 
occurs in the United States. There are also a substantial 
number of Tunisian mines likely to deplete over that period. 
Morocco, Jordan, Togo, and Nauru would also lose produc- 
tion capacity if no new development or expansions were 
allowed. 

The information in table 14 is similar to that presented 
earlier in the "Availability" section. With presumed full- 
capacity production from all currently developed properties, 
the annual availability curves (fig. 16) showed a decline in 
production capacity after only a few years. In table 14, the 
estimated demand level dictates the level of total produc- 
tion. Not all developed properties are producing at capacity, 
and therefore, the depletion of resources happens more 
slowly. In both cases, the shortfalls shown are not meant 
to imply that such shortfalls in supply will actually come 
to pass. Rather, they show the opportunity for expansions 
and development of new production capacity. 

There will be no shortfall in supply as long as the orderly 
development of already -known deposits is allowed to occur. 
The base case simulation allows for that development. Table 
15 shows the results of the base case simulation with regard 
to changes in production capacity on a year-by-year basis. 
Production capacity losses due to depletion of resources 
begin in 1987 and continue throughout the simulation 
period. New production capacity becomes available as early 
as 1986 (reflecting development already under way) and also 
continues throughout the period. 

The earliest entry in table 15 is for expansions at cur- 
rently producing properties, which begin in 1986 and end 



Table 15.— Simulated changes in MEC phosphate 
rock production capacity (1986-2000) 

(Thousand metric tons of P 2 5 ) 



Year 



Lost because of 
resource depletion 



Added by 
expansions 



Added by new 
property development 



1986 





1,288 





1987 


621 


548 





1988 


1,241 


275 


1,068 


1989 





506 


2,112 


1990 


1,362 


1,112 


2,193 


1991 


2,469 


491 


996 


1992 


3,201 


605 


3,139 


1993 


409 


838 


2,061 


1994 





1,138 


96 


1995 





1,104 


970 


1996 


3,705 





2,307 


1997 


2,456 





4,475 


1998 


1,031 





1,941 


1999 


2,017 





3,510 


2000 


2,028 





2,734 


Total . . 


20,540 


7,905 


27,602 



in 1995. There are 13 properties with "solid" expansion 
plans built into the deposit data base, some of them with 
expansion in more than one year. These have all been an- 
nounced publicly and are deemed likely to occur in the 
indicated years (although no expansion is guaranteed). Not 
all announced expansion plans are presumed to occur, since 
many producing countries express their desires for in- 
creased market share without regard to whether there is 
financing available or a reasonably assured market for their 
product. 

The expansions and developments reported in table 15 
show the industry operating at less than full-capacity 
utilization; table 15, therefore, presents information 
somewhat different from that in table 14, which reported 
on additional capacity that would be absolutely required 
in order to meet projected demand. The MEC capacity 
utilization rate for 1985 is about 83 pet, and it rises (in the 
simulation) to greater than 95 pet by the year 2000. 

The geographic distribution of production capacity over 
the forecast period stays similar to the present pattern 
(shown earlier in table 10). However, there are some 
anomalies. Jordan's demonstrated resource base and pro- 
duction capacity will have to be supplemented by additional 
exploration and development (over and above Esh-Shidiyah) 
around the year 2000. Preliminary indications are that 
resources exist, but it is too early to tell at what cost. The 
U.S. share of production begins to erode early in the 1990's 
because of resource depletion. The U.S. share picks up late 
in the 1990's because most of the rest of the world's lower 
cost demonstrated resources have already been developed 
by that time. The United States has a large amount of 
demonstrated resources, however, and represents the large 
bulk of properties developed in the last 3 yr of the simula- 
tion. It may well be that additional resources are proved 
up in foreign countries, depletion may be slower than in- 
dicated, and the U.S. industry would continue to decline 
as a percentage of the world's production capacity. 

Table 15 showed that there are ample demonstrated 
resources in the MEC's to be developed. They are located 
in all the major producing countries (except Nauru). 
However, the cost of providing the necessary additional pro- 
duction capacity between now and the year 2000 is large. 
New property development required to satisfy demand 
growth at 3 pct/yr would cost more than $7 billion (1985 
U.S. dollars). Nearly 70 pet of that total would be for mine 
and mill plant and equipment (fig. 24). The costs for expan- 
sions at already-developed properties are also large, more 



28 



than $1 billion, with almost 60 pet of the total being for 
mill expansions, and more than half the remainder for mine 
investments. Investment in downstream processing 
facilities is not included in the capital cost estimate. 

These capital expenditure totals reflect an assumption 
that the lowest cost properties are the first to develop to 
fill the gap between projected supply and projected demand. 
There are some special cases. The Dagbati property in Togo, 
for example, is relatively low cost, but it is viewed as a 
replacement property and not allowed to develop until the 
early 1990's, just prior to the likely depletion date at the 
major currently producing deposit. Conversely, some higher 
cost properties could be developed in a few countries to serve 
local markets. Brazil and India, for example, are countries 
that desire to be self-sufficient in fertilizers and appear will- 
ing to pay a premium to achieve that goal. 

The bar chart of figure 24 clearly shows several reasons 
why the U.S. producers may be at a disadvantage in the 
future. U.S. capital expenditures are projected to be very 
large for exploration, land acquisition, and mine prepara- 
tion, particularly for land acquisition. The foreign proper- 
ties will have to make sizable investments in infrastruc- 
ture, but not nearly so much as to offset the land acquisi- 
tion expenditures of the United States. The U.S. producers 
of the future may also need to make larger expenditures 
than their foreign competitors on mill plant and equipment, 
on average, reflecting the more complex mineralogy of the 
U.S. deposits. (The possibility for reduced capital expend- 
itures exists at some properties in Florida that may slurry- 
pump mined ore significant distances to existing plants.) 



5-i 



4- 



If) 
CO 



cn 
o 



3- 



LU 

cr 



o_ 

O 



1- 



Annual capacity 
14. 263. 000 mt 




On a per-unit basis, the likely new U.S. deposits will 
need an investment of more than $300/mt annual P 2 5 
capacity (equivalent to $93/mt annual phosphate rock 
capacity), while new foreign deposits will need only an 
average of $220/mt annual P 2 5 capacity ($68/mt phosphate 
rock). By far the cheapest new capacity of the future will 
come from expansions at currently producing properties, 
where only $126/mt of annual P 2 5 capacity ($40/mt 
phosphate rock) is likely to be required. A large portion of 
expenditures for expansions lies in the mill plant and equip- 
ment category. 

Figure 25 shows average costs of production at the prop- 
erties that are likely to be producing over the 1985-2000 
period, presuming demand grows at a 3-pct annual rate and 
new properties are developed in a timely fashion. The three 
lines shown on the graph represent different measures of 
cost. Each of the lines corresponds to the highest cost by 
a producing mine in a particular year. The two dashed lines 
use cost measures equal to the DCFROR values at and 
15 pet, discussed earlier in the "Availability" section. They 
can be interpreted as indicators of a desired price, where 
the marginal property is getting a reasonable return on in- 
vestment but the price is not high enough to entice new com- 
panies into the market. The desired price is one that a com- 
pany (or government) might expect before it makes a 
development decision. The solid line is the average variable 
(marginal) cost at the highest cost producing property. It 
can be interpreted as a likely minimum price; i.e., if the 
price is lower than this value, the marginal property will 
not be earning sufficient revenues to cover cash operating 



KEY 



Annual capacity 
13. 339. 000 mt 



Infrastructure 



Mill plant and equipment 



Mine plant and equipment 




Exploration, acquisition, 
and development 



Annual capacity 
7. 905. 000 mt 




NEW UNITED STATES 
PROPERTY DEVELOPMENT 



NEW FOREIGN 
PROPERTY DEVELOPMENT 



EXPANSIONS 
AT CURRENT PRODUCERS 



FIGURE 24. — Estimated capital expenditures for new production capacity (1985-2000). 



29 



30 



70-- 
£60 
1 50 

a. 

^40-- 

ffi3° 
ai 

S20 



15-pct DCFROR 




Average variable cost 



1985 



1990 



1995 



2000 



YEAR 



FIGURE 25. — Estimated average costs of marginal produc- 
ing properties worldwide (1985-2000). 

costs and might be better off to shut down. 

Costs have been converted from a P 2 5 content basis to 
a standardized 31 pet phosphate rock basis for easier com- 
parison with numbers reported in other Bureau publica- 
tions. The average variable cost (likely minimum price) 
shown in figure 25 starts at just over $25/mt of phosphate 
rock in 1985 and rises to $38/mt in 2000. These values repre- 
sent a price for phosphate rock at a U.S. gulf port, and after 
accounting for transportation costs, the 1985 value is 
similar to that reported in MCS (20) as an f.o.b. mine price. 
Costs at foreign properties are converted to a U.S. gulf 
equivalent by using the historical relationship between the 
U.S. and Casablanca prices. The year 2000 value indicates 
that a 40- to 50-pct rise in price is necessary so that deposits 
with the capacity to produce in that year can earn sufficient 
revenues to cover their variable costs. 

The 15-pct DCFROR line in figure 25 corresponds to the 
same measure reported in the "Availability" section of this 
report. This "incentive price" level might be considered a 
reasonable target price by a market-oriented firm choosing 
between alternative investment opportunities. The earliest 
of the new properties developed (in 1988, table 15) requires 
nearly $50/mt of phosphate rock to earn a 15-pct return on 
investment. Recent prices have been in the $23/mt to $27/mt 
range, close to the all-time low in real dollar terms. By the 
late 1990's, a typical new property will have an average 
total cost level (assuming a 15-pct DCFROR) of $60/mt and 
above. 

The 0-pct DCFROR total cost measure is also shown for 
the same set of properties. This level might be more ap- 
propriate for a Government-owned operation, where benefits 
accrue in the form of increased domestic employment op- 
portunities, larger export earnings, enhanced infrastructure 
for developing other sectors of the economy, or increased 
political stability. 

The average total costs for new producers at the 0-pct 
DCFROR level are lower than at the 15-pct level. The first 
properties developed have average total costs around 
$30/mt. By the late 1990's, the 0-pct DCFROR cost is in the 
$40/mt to $45/mt range for newly developed properties. 

With regard to who develops the new capacity, each of 
the major producing countries has additional resources to 
replace mines that are likely to deplete, the United States 
included. Most of the major producing countries also have 
sufficient resources to maintain their market share in a 



growing market, the United States included. However, not 
all resources are available at the same costs. It is here that 
the U.S. phosphate industry is at a disadvantage. Much of 
the domestic phosphate that is yet to be developed requires 
a higher price if investment is to earn a reasonable rate 
of return. Also, since most of the production capacity out- 
side the United States is government owned, other poten- 
tial new mine developers may be looking at a lower target 
rate of return when contemplating a decision to develop. 

Competitive Position of Potential Suppliers 
in 1995 

Results from the market balance model simulation for 
the period up to 1995 were fed into the network flow model 
so that the competitive position of potential suppliers in that 
year could be examined. Results from the market balance 
model showed that 12 properties would be closed because 
of resource depletion: Nauru, Christmas Island, and 5 each 
in the United States and Tunisia. Forty-six properties were 
designated as potential new producers: 24 in the United 
States, 6 in north Africa, 6 in South America, 3 in the 
Middle East, and 7 in various other countries. Demand for 
phosphoric acid in MEC's was increased by 3.4 million mt 
of contained phosphate, or 17 pet over the 1984 base year 
value. 

All potential new properties were offered the opportu- 
nity to produce, but the network flow model predicted that 
only 17 would produce; i.e., given the predicted 1995 de- 
mand levels, only 17 of the new properties had variable 
delivered costs low enough to make them competitive with 
previously developed properties. Table 16 presents the com- 
parison of actual production of P 2 5 in MEC's in 1984 with 
predicted production for 1995, as well as the percentage 
change in production compared with the increase in world- 
wide demand for phosphoric acid. Several of the MEC pro- 
ducers could increase their production by amounts ex- 
ceeding the increase in demand, which indicates that they 
could gain a bigger market share over their position in 1984. 
It is important when interpreting these numbers to note 
that a forecast for changes in production in China is ex- 
cluded from the 1995 model. To the extent that production 
in China does increase by 1995, increases in shipments of 
phosphate to Asia from MEC deposits would be smaller and 
the percentage increase in production, especially for those 
countries whose natural markets include Asia, could be less. 

The simulated increases in production in the United 
States and Morocco in 1995 are comparable in magnitude, 
indicating that both would retain their positions as major 
producers and exporters of phosphate products. Israel and 
Jordan could both gain market share, although not to the 
degree, in absolute terms, that the United States and 
Morocco could. Egypt, Syria, and Algeria could lose market 
share in relative and absolute terms because of high cost. 

Table 16.— Estimated production in selected MEC's in 1995 

(Thousand metric tons of P 2 5 ) 

r 1984 Predicted 1995 Production Pet of demand 

oountry production 1 production increase, pet increase 

Israel 995 2,261 127.2 37.7 

Jordan 2,042 3,214 57.4 33.8 

Morocco 6,762 9,885 46.2 114.4 

Tunisia 1,554 1,812 16.6 16.9 

United States . 14,889 18,354 23.3 113.0 

Other MEC's* . 5,940 7,426 25.0 41.8 

1 Source: Stowasser (20). 

2 Other MEC's: Algeria, Brazil, Christmas Island, Egypt, Finland, India, Iraq, 
Mexico, Nauru, Senegal, Republic of South Africa, Syria, Togo, Zimbabwe. 



30 



Table 17.— Estimated marginal costs of delivered 

phosphoric acid, by region, 1984 and 1995 

(unconstrained network models) 

(January 1985 dollars per metric ton) 

Marginal cost of 
Demand region 1 delivered acid product 
1984 1995 

North America: 

Canada $260 $268 

United States 244 223 

South America 258 258 

Africa 250 249 

Western Europe 300 299 

Asia 326 323 

'Eastern Europe and U.S.S.R. acid demand not shown, as reliable cost data 
are unavailable. 

The marginal costs of delivered phosphoric acid in 
selected regions for 1984 and 1995 simulations are shown 
in table 17. These values are not directly comparable to 
those reported for 1984 in table 13 because these simula- 
tions did not include the constraints embodied in the 1984 
base case, e.g., contractual obligations and established 
trading patterns. 

The delivered costs are lower across the board in the 
unconstrained analysis, suggesting that there may be more 
economically efficient trading patterns than those observed 
in 1984. Nevertheless, the relationships between the 
marginal cost values by year are meaningful. The marginal 
delivered cost values are virtually the same in 1995 as in 
1984. This is consistent with large, low- (variable) cost prop- 
erties coming on-line and considerable excess capacity cur- 
rently available. Figure 25 reiterates these findings; the 
average variable cost curve increases by negligible amounts 
prior to 1996. U.S. delivered costs decrease in 1995 because 
some low-cost material previously exported is now available 
for U.S. markets. 

The cost relationships between regions are also of in- 
terest. Figure 26, showing the distribution of delivered 
phosphoric acid costs to major MEC regions, reinforces the 
information in table 17. Phosphoric acid products could be 
delivered to the United States at lower costs than to either 
Western Europe or Asia, and to Western Europe at lower 
costs than to Asia. One change from the results presented 
for 1984 (fig. 19) is the shape of the curves. Only the United 
States exhibits a broad middle range centered at 50 pet of 
delivered phosphoric acid product, where delivered costs are 
nearly constant. For Asia, the flat range is narrower and 
shifted up and to the right, centering closer to the 75-pct 
mark. For Western Europe, there is no flat range. The model 
suggests that by 1995 Asia and probably Western Europe 
will have fewer suppliers facing the median cost. These 
changes reflect the fact that increasing amounts of delivered 
phosphoric acid product in these regions could only be 
gained at continual increases in delivered phosphoric acid 
costs. Keep in mind that the 1995 simulation is based on 
a substantial increase in demand to be met from MEC pro- 
duction, implying that most of the phosphoric acid plants 
considered high cost in the 1984 simulation would need to 
be operating. 

Natural markets in 1995 shift somewhat compared with 
those reported in the previous section for 1984. (Natural 
markets are those in which a supplier would appear to have 
a cost advantage relative to alternative suppliers.) The 
natural markets for phosphate rock from Togo expand to 
include some Far Eastern areas. The natural markets for 
Tunisia remain for phosphoric acid product only, but the 
area in which it competes effectively expands into the Far 



350 



^300 



Asias 








100 



25 50 75 

DELIVERED ACID PRODUCTS, pet of total 

FIGURE 26. — Delivered cost of phosphoric acid to selected 
regions, 1995. 

East. Morocco could lose some phosphate rock markets but 
gain phosphoric acid markets. Senegal's and Jordan's 
natural markets remain the same, while Israel appears to 
gain phosphate rock markets. 

The United States continues to have natural markets 
for phosphate rock in Canada, Western Europe, South 
America, and Asia. The natural markets for phosphoric 
acid, however, could be limited to Canada, South America, 
and Asia. The ability of MEC producers to gain or main- 
tain natural markets in Asia will depend heavily on the 
realistic nature of two assumptions inherent in the 1995 
simulation of the network flow model: i.e., China does not 
expand production beyond current levels, and both the 
Nauru and Christmas Island deposits are depleted. 



Alternative Scenarios 

Several alternative scenarios have been analyzed for 
purposes of demonstrating the capabilities of the models and 
gaining insight to the future phosphate market. Some of 
the scenarios are more likely than others, but all present 
interesting perspectives on the market. The focus of the 
analysis is on supply, and the variations in demand in some 
scenarios only serve to highlight the supply response to dif- 
ferent underlying conditions. 

The first set of scenarios involves alternative worldwide 
demand growth rates. The market balance model results 
show that resource depletion over time under the alter- 
native assumptions about demand can be affected 
dramatically. 

The second set of scenarios are disruption scenarios; i.e., 
measuring the market impacts if phosphate is suddenly not 
available from certain deposits or regions. This is defined 
in two parts; first, production from the Bou Craa deposit 
in Western Sahara (controlled by Morocco) is disrupted, and 
then all of Moroccan output is disrupted. While the second 
scenario appears unlikely (and rather extreme) it does pro- 
vide information about Morocco's importance to the market. 

Each of these disaster scenarios is addressed with both 
the market balance model and the network flow model. The 
results of the market balance model are used to illustrate 
the adjustments in the market over a medium- to long-term 
timeframe. The results of the network flow model highlight 
regional competition in the short run and illustrate the op- 
portunities available for alternative suppliers. 



31 



Table 18.— Adequacy of supply from current producers at alternative demand levels 

(Thousand metric tons of P 2 5 ) 



Year 



Demand 
(2-pct/yr 
growth) 



Phosphate rock shortfall 



No 


Announced 


expansion 


expansion 


allowed 


occurs 












































2,510 





7,072 





7,903 





8,559 





1 1 ,833 


4,026 


14,530 


7,218 


17,001 


9,334 


19,690 


12,136 


22,604 


15,268 



Demand 
(1-pct/yr 
growth) 



Phosphate rock shortfall 



No 


Announced 


expansion 


expansion 


allowed 


occurs 


















































1,471 





1,600 





1,761 





5,216 





7,482 





8,897 





10,980 


2,150 


13,371 


4,721 



1985 49,663 

1986 50,656 

1987 51,669 

1988 52,702 

1989 53,756 

1990 54,831 

1991 55,928 

1992 57,047 

1993 58,188 

1994 59,351 

1995 60,538 

1996 61,749 

1997 62,984 

1998 64,244 

1999 65,529 

2000 66,839 



49,663 
50,159 
50,661 
51,167 
51,679 
52,196 
52,718 
53,245 
53,777 
54,315 
54,858 
55,407 
55,961 
56,521 
57,086 
57,657 



Alternative Demand Projections 

The market balance model was used in simulations to 
the year 2000 under two alternative assumptions for the 
rate of growth in world demand for phosphate products. The 
results (table 18) show a reduced amount of required new 
capacity at lower projected rates of demand growth. Com- 
paring this information with similar information for the 
base case projection (using a 3-pct growth rate in demand) 
given in table 14 shows that only two-thirds as much new 
development is absolutely required at a 2-pct growth rate 
and only one-third as much development is needed at a 1-pct 
rate. When likely expansion of current producers is taken 
into account, almost no new property development would 
be required if demand grows at only 1 pct/yr. 

Disruption Analyses 

Two levels of supply interruption were hypothesized and 
included in model simulations for analysis. Both disruption 
scenarios assume the same level of effective demand as in 
the base case simulation. The lowest level of disruption 
assumed that no material was available from the Bou Craa 
deposit in Western Sahara. The most severe disruption level 
looked at a case where no material was available from any 
of the deposits in Morocco or Western Sahara. This may be 
a reasonable short-run scenario since there have been brief 
interruptions in the past. The likelihood of either of these 
scenarios was not addressed; they were chosen only for il- 
lustrative purposes. However, results from the models under 
these assumptions indicate the magnitude and types of ad- 
justments that would be necessary. Given the possibility 
of civil unrest or political action in Western Sahara, a brief 
disruption of Moroccan supply is not inconceivable. 

Results from the market balance model indicate only 
a minor impact if phosphate rock is no longer available from 
the Bou Craa deposit in Western Sahara, even if Bou Craa 
is disrupted for the entire forecast period. There is ample 
unused phosphate rock capacity in tbe world at present and 
an ample amount of potential production from new proper- 
ties to replace Bou Craa phosphate rock in the future. The 
projected price is shown in figure 27 for both disruption 
scenarios and the base case discussed earlier. 

The year-by-year results for the Bou Craa scenario are 
very similar to the base case simulation results. The 
average variable cost values (likely minimum price) for the 
Bou Craa disruption simulation are less than 5 pet higher 



than the base case simulation results in all years. There 
are many properties waiting to be developed that have 
average variable costs of production only slightly higher 
than those of current producers. 

The network flow model gives a different set of results 
from the Bou Craa disruption scenario, however, and makes 
additional effects from such a disruption apparent. The loss 
of Bou Craa, a relatively large, low-cost source of phosphate 
rock, provides an opportunity for other suppliers to 
penetrate the markets that were supplied by that deposit. 
The results highlight the set of other suppliers who might 
be in a position to respond to an interruption of normal 
supply sources. 

The base case design of the network is easily altered 
to represent a world market change. Transportation paths 
or arcs can be added or removed (by setting the upper bound 
to zero), costs changed, or specific facilities designated as 
closed or opened. The model is then reoptimized. By com- 
paring the original 1984 base case optimal solution with 
this new optimal solution, predicted changes in material 
flows can be identified. 




1985 



1990 



1995 



2000 



YEAR 



FIGURE 27. — Estimated average variable cost of marginal sup- 
plier if normal supply disrupted. 

In designing the model, it has been assumed that Bou 
Craa phosphate rock is largely shipped to Spain as it has 
been in the past. Given this basic assumption, the results 
of a loss of Bou Craa phosphate rock could be viewed in two 



32 



ways: Spain would import phosphate rock from other 
sources or it would not. In the former case, approximately 
700,000 mt of P 2 5 in phosphate rock would have to be 
replaced. It is possible that Morocco would send production 
from its remaining properties to Spain. This would imply 
a higher cost phosphoric acid product exported from Spain, 
as Bou Craa is a lower cost producer of phosphate rock than 
most other Moroccan properties. 

If alternative sources of supply, other than Morocco, 
were to be considered, several producers with available 
capacity appear to be relatively competitive in shipping 
phosphate rock into Spain. These include Togo, Senegal, and 
the United States. It is interesting to note that when many 
producers have the opportunity to ship to Spain, and the 
replacement rock is chosen on a strictly cost basis, all the 
business does not automatically shift to other Moroccan 
properties. 

Analysis of Spanish import-export data for phosphate 
rock compared with phosphoric acid plant capacity indicates 
that Spain may be a reexporter of phosphate rock. When 
low-cost sources of phosphate rock are no longer available, 
this may not remain the case. However, Spanish phosphoric 
acid remains cost competitive even with somewhat higher 
cost phosphate rock, so it is probable that at least enough 
phosphate rock to supply the phosphoric acid plants would 
be imported. 

Were Spain to stop exporting phosphoric acid, its market 
share would be available to alternative suppliers. In par- 
ticular, cost-competitive alternative suppliers of phosphoric 
acid to Western and Eastern Europe would be in a position 
to gain market share. Their ability to do so in the short run 
would be limited by available capacity. In both of these 
cases, the phosphate rock markets appear able to adapt to 
the loss of Bou Craa without major disruption. 

The second disruption scenario involves an interruption 
of supplies from all Moroccan deposits. The market balance 
model results show that the already-developed deposits in 
the rest of world can replace the phosphate rock no longer 
available from Morocco, but at a very high cost (fig. 27). The 
average variable cost at the highest cost, or marginal, pro- 
ducer is immediately almost double the base case value, as 
some very high cost properties (assumed temporarily shut 
down in the base case solution of the market balance model) 
are brought back into production. The estimated cost level 
decreases slowly as new properties are developed. The slight 
rises in several of the early years of the simulation indicate 
that resources at some currently producing properties are 
being depleted faster than new capacity is being developed 
for those years. The average variable cost value tends to 
continue to drop as long as there are new properties being 
developed with average variable costs lower than some of 
the already producing properties. 

The currently nonproducing properties that require the 
longest lead times would all be developed and producing 
by the early 1990's, and from that point onward, the cost 
level would rise at a pace determined by demand growth 
and depletion of resources. By the yeer 2000, the required 
supply of phosphate rock would have to come from very high 
cost properties, deposits that would not be developed under 
normal circumstances. Were conditions even remotely 



similar to such a disruption to occur, it is more probable 
that many of the resources now in the inferred category 
would be proved up by exploration to the demonstrated 
level, and the costs could be far below that shown in figure 
27. 

Results from the network flow model simulation show 
additional pieces of information. The full Moroccan disrup- 
tion has enormous implications for the pattern of produc- 
tion and trade. 

Morocco is an important exporter of phosphate rock and 
phosphoric acid products to many markets, particularly 
Western and Eastern Europe. There would undoubtedly be 
shifts in market shares held by alternative suppliers of 
phosphate rock into these markets. The delivered cost from 
the marginal supplier would likely be higher than it is now. 
However, given that increased exports from producers with 
excess capacity are directed to Western Europe in the net- 
work design, adequate mine and mill capacity is currently 
available worldwide to replace all Moroccan phosphate rock 
production. This adequacy of capacity is demonstrated 
without the need to deplete current phosphate rock 
inventories. 

The United States currently exports over 750,000 mt 
of P 2 5 in rock product to Western Europe (12). If Morocco 
were to cease exporting phosphate rock, U.S. producers 
would appear to be in a competitive position to increase ex- 
ports to that market. In fact, even with Morocco producing, 
the results of the network flow model indicate that U.S. ex- 
ports into Western Europe are competitive with some cur- 
rent suppliers on a strictly cost basis. While there are lower 
cost properties than the marginal U.S. property supplying 
Western Europe, their capacity is not adequate to fulfill the 
entire market demand. Further, the United States is not 
the marginal supplier of phosphate rock to Western Europe. 

Another interesting aspect of a disruption of Moroccan 
production is world phosphoric acid capacity. Morocco had 
phosphoric acid plant capacity for approximately 1.5 million 
mt of P 2 5 in 1984 (22), divided among four plants. In the 
base case solution, all four were producing at capacity. Were 
they to temporarily shut down, alternative phosphoric acid 
capacity would be needed. The base case solution shows the 
capacity of idle phosphoric acid plants to be approximately 
2.2 million mt of P 2 5 . 

Apparently, there currently exists phosphoric acid 
capacity adequate to replace all Moroccan phosphoric acid 
exports. Approximately 10 pet of the idle capacity is located 
in Western Europe, with the balance distributed worldwide. 
Many of the plants shown idle in the network are in loca- 
tions physically remote from either their phosphate rock 
supply and/or Europe. In the base case solution, the United 
States and Canada have idle phosphoric acid plant capa- 
city in an amount equal to over 30 pet of the Moroccan 
capacity. Although the plants predicted to be idle are in 
several instances far from eastern Canada or U.S. ports, 
their output could be exported. With shifting trading pat- 
terns, traditional suppliers of phosphoric acid products to 
Europe who are predicted to have idle phosphoric acid capa- 
city could gain market share. These could include the 
United States, Canada, the Republic of South Africa, Israel, 
Senegal, and possibly Japan and the Republic of Korea. 



33 



CONCLUSIONS 



The agricultural industry worldwide is dependent upon 
the supply of fertilizers derived from phosphate rock. The 
Bureau of Mines is looking at the level, conditions, and 
determinants of phosphate supply both in the current year 
and in the future. A necessary first step toward this objec- 
tive is to reexamine world resources, production capacity, 
and costs. This updated information is placed into a market 
context in the form of computerized mineral market models. 
By so doing, the "snapshot" description of phosphate pro- 
vided by an availability study is expanded to allow for a 
variety of assumptions concerning the economic and 
political realities facing the industry. 

The Bureau evaluated 206 mines and deposits in 30 
MEC's and investigated the resource potential of mines and 
deposits in China and the U.S.S.R. The selected mines and 
deposits include all known resources of phosphate rock at 
the demonstrated resource level that met the criteria of the 
study and can be mined and milled with current technology. 

Approximately 35.1 billion mt of phosphate rock is 
potentially recoverable from the demonstrated resources of 
the mines and deposits evaluated in MEC's. An additional 
1.5 billion mt of phosphate rock is potentially recoverable 
from mines and deposits in China and the U.S.S.R. Morocco 
has the largest resource, with 21.6 billion mt of recoverable 
phosphate rock, followed by the United States with 6.1 
billion mt. 

Total MEC production from the demonstrated resource 
base in 1985 was more than 106 million mt. This indicates 
approximately 76 pet capacity utilization. The United States 
produced nearly 51 million mt (47 pet of the total), while 
Morocco produced about 21 million mt (20 pet of the total). 
CPEC production was an additional 45 million mt. 

Potential annual capacity from currently producing 
mines in the United States could decline from about 67 
million mt in 1987 to under 41 million mt by late in the 
next decade, as the demonstrated resources of some produc- 
ing mines become exhausted. (The rate of capacity decline 
will be determined by the actual rate of production.) 
However, the annual capacity of currently producing mines 
in Morocco is estimated to decrease only slightly by 1997 
to 28 million mt (from 30 million mt in 1987). Assuming 
fixed capacities for existing mines and U.S. production re- 
maining at least at 1985 levels, more than half of U.S. pro- 
duction in 1997 would come from mines yet to be developed. 

Undeveloped deposits in the United States contain a 
demonstrated resource of 400 million mt of recoverable 
phosphate rock, which could be developed and produced for 
under $50/mt (including a 15-pct DCFROR). If developed 
concurrently, the deposits could have a potential annual 
capacity of 16 million mt of phosphate rock in the year 
N+10 of the analysis, at total production costs under 
$50/mt. In comparison, much of the competing phosphate 
rock from existing mines in Morocco (most of which have 
sufficient resources to last well into the next century) can 
be produced for under $40/mt. This fact, combined with 
Morocco's cost advantage in shipping phosphate rock to 
major consuming markets, indicates that the cost advan- 
tage in the world phosphate rock export industry may shift 
from Florida to Morocco in the future. 

Morocco and several other phosphate-producing coun- 
tries are constructing new phosphoric acid plants to proc- 
ess phosphate rock, which means that as the average cost 
of domestic phosphate rock increases, the United States will 



also face serious competition in the export markets for 
phosphoric acid and related fertilizer products. The United 
States is the largest consumer of phosphate fertilizers and 
should remain as the main supplier of phosphate products 
domestically and to Canada. However, the U.S. phosphate 
industry will face competition from other producing coun- 
tries in all other major markets. 

The market models were developed so that Bureau 
analysts could examine the cost and resource data within 
a market context and thereby be better able to assess the 
relative competitive position of U.S. suppliers under dif- 
ferent sets of assumptions. The production potential dis- 
cussed in the "Availability" section of this study is coupled 
with the supply model methods for estimating actual pro- 
duction levels. Both forms of market models (market 
balance and network flow) assume that production will come 
from the potential supply source with the lowest cost. This 
supply perspective is used to determine rates of resource 
depletion at all MEC deposits that are consistent with 
estimates of demand and other market conditions. 

Results from a base case projection using the market 
balance model show that with a 3-pct growth rate in 
demand, already -developed production capacity is sufficient 
to satisfy worldwide demand until 1990. If already- 
announced expansion plans are presumed to take place, 
then current producers will have sufficient capacity to 
satisfy demand a year or two longer than that. If the growth 
rate for consumption is as low as 1 pct/yr, current capacity 
could be sufficient until the mid to late 1990's, depending 
on whether there is expansion at already-developed 
properties. 

Allowing for a small surplus of production capacity over 
required supply (i.e., estimated demand growth of 3 pct/yr), 
results from the market balance model suggest that nearly 
36 million mt (P 2 5 ) of new capacity will be developed by 
the year 2000, most of that from new properties. The capital 
costs for this development will be significant, over $8 billion. 
Total costs at new properties likely to be developed by the 
year 2000 are in the $60/mt to $70/mt (of phosphate rock) 
range at a 15-pct DCFROR and in the $40/mt to $45/mt 
range at a 0-pct DCFROR. Average variable costs at those 
properties (a necessary minimum price) will be in the $35/mt 
to $40/mt (of phosphate rock) range, a 25- to 50-pct increase 
over current cost levels and market prices. 

Results from the network flow model indicate the cur- 
rent competitive positions of alternative suppliers to each 
of the major consuming regions. Markets for both phosphate 
rock and phosphoric acid have been examined. The United 
States is shown to be reasonably competitive in many 
markets for both phosphate rock and phosphoric acid. 
However, U.S. producers do not have the lowest delivered 
cost for phosphate products in any markets except Canada 
and the United States. Additionally, major changes to 
transportation rates, which are a very large percentage of 
delivered cost, could affect the costs of delivered U.S. 
phosphate relative to phosphates from suppliers located 
closer to some demand regions. The higher costs associated 
with the yet-to-be-developed deposits in the southern exten- 
sion in Florida will also mean increased competition in both 
domestic and export markets from other supply sources in 
the future. 

From the perspective of the phosphate consumer, the 
United States is in an enviable position. Phosphate products 



34 



can be delivered at lower cost to U.S. consumers than they 
can to any of the other major phosphate-fertilizer-using 
areas in the world. This is likely to remain true for at least 
the rest of the century. Western Europe is the major con- 
suming region with the next lowest delivered costs for 
phosphate products, incurring 10 to 15 pet additional pro- 
duction and transportation charges for material from most 
of its traditional sources. The Asian market, most of which 
is far from the principal supply sources, shows median 
delivered costs 20 to 30 pet higher than those borne by U.S. 
consumers. 

Both models were also used to examine various disrup- 
tion scenarios. The loss of small amounts of production 
capacity have very little impact on the market. The large 
amount of excess capacity currently available ensures that 
material from other deposits would be available at only 
slight increases in cost. 



The loss of larger amounts of production capacity was 
also examined. Results from the market balance model show 
that current capacity is sufficient to replace phosphate 
material from a disruption of a supply source as large as 
all of Morocco. Even over a long-time horizon, it is shown 
that current capacity plus demonstrated resources waiting 
to be developed are sufficient to replace material lost in such 
a disruption. The increase in costs, however, would be 
substantial, especially in a 2- to 4-yr interim period while 
new property development took place. 

Results from the network flow model indicate that there 
is also sufficient phosphoric acid capacity to make up for 
such a disruption in supplies. Major shifts from traditional 
trading patterns would be required, however, and there 
would be substantial increase in delivered cost of phosphate 
products in virtually all markets. 



35 



REFERENCES 



1. Fantel, R.J., T.F. Anstett, G.R. Peterson, K.E. Porter, and 
D. E. Sullivan. Phosphate Rock Availability— World. A Minerals 
Availability Program Appraisal. BuMines IC 8989, 1984, 65 pp. 

2. British Sulphur Corp. Ltd. (London, England). Phosphate 
Rock Mining in Morocco, An Analysis of Costs. Apr. 1985, 66 pp. 

3. Oxford, T. (Zellars-Williams, Inc.). Private communication, 
1986; available upon request from R. J. Fantel, MAFO, BuMines, 
Denver, CO. 

4. Williams, J.M. Phosphate Rock End-Use Products and Their 
Costs (contract J0377000, Zellars-Williams, Inc). BuMines OFR 
102-79, 1978, 73 pp. 

5. Lewis, R.W. Phosphate Rock. Ch. in Minerals Yearbook 1963, 
v. 1, pp. 877-898. 

6. Stowasser, W.F. Phosphate Rock. Ch. in BuMines Minerals 
Yearbook 1973, v. 1, pp. 1019-1035. 

7. Phosphate Rock. Ch. in BuMines Minerals Yearbook 

1984, v. 1, pp. 705-721. 

8. Phosphate Rock. Ch. in BuMines Minerals Yearbook 

1985, v. 1, pp. 745-762. 

9. United Nations. FAO Annual Fertilizer Review. Various 
issues. 

10. Process Technologies for Phosphate Fertilizers. Dev. 

and Transfer Technol. Ser., No. 8, 1978, 59 pp. 

11. Stowasser, W.F. Phosphate Rock. Ch. in Mineral Facts and 
Problems, 1985 Edition. BuMines B 675, 1986, pp. 579-594. 

12. International Fertilizer Industry Association (Paris, France). 
Phosphate Rock Statistics, 1984. Apr. 19, 1985, 27 pp. 

13. Phosphate Rock Statistics, 1985. Apr. 7, 1986, 25 pp. 

14. Processed Phosphates and Urea Trade, January- 
December 1984. Aug. 1985, 89 pp. 

15. Clement, G.K., Jr., R.L. Miller, P.A. Seibert, L. Avery, and 
H. Bennett. Capital and Operating Cost Estimating System Manual 
for Mining and Beneficiation of Metallic and Nonmetallic Minerals 
Except Fossil Fuels in the United States and Canada. BuMines 
Spec. Publ., 1980, 149 pp. Also available as 

Clement, G.K., Jr., L. Avery, and P.A. Seibert. Capital and 
Operating Cost Estimating System Handbook. Mining and 
Beneficiation of Metallic and Nonmetallic Minerals Except Fossil 
Fuels in the United States and Canada (contract J0255026, 
STRAAM Engineers, Inc.). BuMines OFR 10-78, 1977, 382 pp. 

16. Davidoff, R.L. Supply Analysis Model (SAM): A Minerals 
Availability System Methodology. BuMines IC 8820, 1980, 45 pp. 

17. Stermole, F.J. Economic Evaluation and Investment Deci- 
sion Methods. Investment Evaluations Corp., Golden, CO., 3d ed., 
1980, 443 pp. 

18. National Research Council, Committee on Nonfuel Demand 
Relationships. Mineral Demand Modeling. Natl. Acad. Sci., 1982, 
130 pp. 

19. Glover, F., and D. Klingman. Network Application in 
Industry and Government. Am. Inst. Ind. Eng. Trans., v. 9, No. 
4, 1977, pp. 363-376. 

20. Stowasser, W.F. Phosphate Rock. Sec. in BuMines Mineral 
Commodity Summaries 1986, pp. 116-117. 

21. International Fertilizer Industry Association. Fertilizer Con- 
sumption Statistics, 1983/1984. July 1985, 87 pp. 

22. Phosphoric Acid, Triple Superphosphate and 

Ammonium Phosphate Plants, 1986 Survey, With Nitrophosphate 
Plant Update. June 1986, 34 pp. 



23. Llewellyn, T.O., B.E. Davis, G.V. Sullivan, and J.P. Hansen. 
Beneficiation of High-Magnesium Phosphate From Southern 
Florida. BuMines RI 8609, 1982, 16 pp. 

24. Lawver, J.E., R.L. Wiegel, R.E. Snow, and C.L. Hwang. 
Beneficiation of Dolomitic Florida Phosphate Reserves. Paper in 
Proceedings of Fourteenth International Mineral Processing Con- 
gress (Toronto, Ontario, Canada, Oct. 17-23, 1982). Can. Inst, of 
Min. and Metall. Montreal, Quebec, Canada, 1982, 22 pp. 

25. U.S. Bureau of Mines and U.S. Geological Survey. Principles 
of a Resource/Reserve Classification for Minerals. U.S. Geol. Survey 
Circ. 831, 1980, 5 pp. 

26. Zellars, M.E., and J.M. Williams. Evaluation of Phosphate 
Deposits of Florida Using the Minerals Availability System (con- 
tract J0377000, Zellars-Williams, Inc.). BuMines OFR 112-78, 1978, 
196 pp.; NTIS PB 286 648. 

27. Baumgardner, L.H., M.E. Zellars, and J.M. Williams. Evalua- 
tion of the Phosphate Deposits of Tennessee Using the Minerals 
Availability System (contract J0377000, Zellars-Williams, Inc.). 
BuMines OFR 13-79, 1978, 37 pp. 

28. Dahlquist, C.P., and F.R. Bjorck. Numerical Methods. 
Prentice-Hall, 1974, 450 pp. 

29. Management Science Software Systems. Thoroughly General 
Network Algorithm. Ongoing BuMines contract S0267021; for inf., 
contact D.J. Shields, TPO, MAFO, BuMines, Denver, CO. 

30. Glover, F., R. Glover, and D. Klingman. Computational Study 
of an Improved Shortest Path Algorithm. Ch. in Networks. Wiley, 
v. 14, 1984, pp. 25-36. 

31. Intrilligator, D.A. Dynamic Programming. Ch. in Dynamic 
Optimization. Irwin, 1970, pp. 326-351. 

32. Anders, G., W.P. Gramm, S.C. Maurice, and C.W. Smithson. 
Theory of the Mineral-Extracting Firm and Industry. Ch. in The 
Economics of Mineral Extraction. Praeger, 1980, pp. 11-49. 

33. Simon, H.A. A Behavioral Model of Rational Choice. Q. J. 
Econ., 1955, pp. 99-118. 

34. U.S. Defense Mapping Agency. Distances Between Ports. 
Publ. 151, 1985, 187 pp. 

35. Kennington, J.L., and R.V. Helgason. The Simplex Method 
for the Generalized Network Problem. Ch. in Algorithms for Net- 
work Programming. Wiley, 1980, pp. 91-123. 

36. International Fertilizer Industry Association. Quarterly 
Phosphate Rock Statistics, January-March 1984. May 16, 1984, 

11 PP- 

37. Quarterly Phosphate Rock Statistics, January-March 

1985. May 16, 1985, 11 pp. 

38. Andrews, P.W.S. Industrial Analysis in Economics. Ch. in 
Oxford Studies in the Price Mechanism, ed. by T. Wilson and P.W.S. 
Andrews. Oxford Univ. Press, 1951, pp. 67-88. 

39. Koutsoyiannis, A. Theory of Cost. Ch. in Modern 
Microeconomics. Macmillan, 1979, pp. 114-120. 

40. Martime Research Inc. (Parlin, N.J.). Chartering Annual 
1983, 1984, p. 7. 

41. Jensen, PA., and J.W. Barnes. Generalized Minimum Cost 
Flow Problem. Ch. in Network Flow Programming. Wiley, 1980, 
pp. 281-334 



36 



APPENDIX A.— WORLD MINE AND DEPOSIT STATUS AND INFORMATION' 



This study assumes that 82 MEC mines were in pro- 
duction as of the beginning of 1985 (34 in the United States 
and 48 in foreign countries, not including CPEC's). The 
study also includes 124 nonproducing deposits (90 in the 
United States and 34 foreign), comprising deposits that are 
developing or have definite developmental plans as well as 
many deposits that are just explored prospects. Table A-l 
lists all the mines and deposits included in the study and 
provides information on the actual or proposed mining 
operation. 

UNITED STATES 

The majority of the U.S. producing properties are located 
in Florida, with 22 mines, owned and operated by 13 com- 
panies, all producing phosphate rock for phosphoric acid 
plant feed or export. The International Minerals and 
Chemicals (IMC) Corp. operates the Kingsford, Noralyn, and 
Clear Springs Mines, all in Polk County. W.R. Grace & Co. 
operates the Hookers Prairie Mine in Polk County and is 
coowner of the newly commissioned joint venture Four Cor- 
ners Mine (with IMC) in Polk and Manatee Counties. W.R. 
Grace's Bonny Lake Mine, now depleted, was not included 
in the study. Agrico Chemical Co. operates the Fort Green, 
Payne Creek, and Saddle Creek Mines, all in Polk County. 
Mobil Chemical Co. operates a mine near Fort Meade as 
well as its Nichols Mine, both in Polk County. Estech 
General Chemical Co. operates two mines in Polk County, 
the Silver City Mine and the Watson Mine. The 
Haynesworth Mine in Polk County and the Lonesome Mine 
in Hillsborough County are operated by Brewster 
Phosphates. The remaining two mines in Polk County are 
USS Agri-Chemical's Rockland Mine and Gardinier Inc.'s 
mine near Fort Meade. Two mines are operated by Occiden- 
tal Chemical Co. in Hamilton County: the Suwannee River 
and Swift Creek Mines. Beker Industries operates the 
Wingate Creek Mine in Manatee County. Hardee county 
contains the C. F. Industries complex near the Polk County 
line, and Hillsborough County contains the newly opened 
Hopewell Mine owned by Noranda, and the Big Four Mine 
owned by Mobil. The Big Four Mine has been idle since 
1982. 

A slowdown in phosphate demand growth and lower 
than normal prices since 1981 have led to shutdowns, 
shorter workweeks, and otherwise reduced output levels for 
the Florida industry. Most of the mines listed above have 
at one time or another experienced these conditions over 
this period and there is presently a realignment of owner- 
ship occurring within the industry. The only deposits being 
considered for development in the near future in Florida 
are Mobil's South Fort Meade Mine and a mine in southeast 
Hillsborough County being considered by IMC. 

The study also included 40 explored prospects in Florida 
whose resources could become available sometime in the 
future. A majority of these prospects are located in Florida's 
southern extension, an extension of the currently mined cen- 
tral district. Mines in this area will have higher stripping 
ratios, and ores will have generally lower grades and a 



higher magnesium content than ores in the area currently 
being mined. Included in the 40 deposits are such prospects 
as AMAX's Pine Level, Kerr McGee Chemical Corp.'s 
Brooker Dukes (in Alachua County), Freeport's Acrefoot 
Johnson, and many others. 

In North Carolina, Texasgulf Chemical Corp. operates 
the Lee Creek Mine, and the North Carolina Phosphate 
Corp. (recently purchased by Texasgulf) had initiated 
development on the Canvas Creek Mine (which could have 
been operational by the end of this decade if developmen- 
tal efforts had continued). Both operations produce or would 
produce phosphate rock for phosphoric acid plant feed or 
export. 

Operations in Tennessee are owned by Hooker Chemical 
Co., Monsanto Industrial Chemical Co., and Stauffer 
Chemical Co. Some tracts in Tennessee are owned by the 
Tennessee Valley Authority (TVA). Production in Tennessee 
in the past has gone to produce elemental phosphorus. Mon- 
santo was expected to cease operations in Tennessee by 
1987. 

In the Western United States, Chevron Resources Co. 
operates the Vernal, UT, mine (whose capacity was to be 
expanded in 1986). Cominco American Inc., operates the 
only underground phosphate rock mine in the United States 
(the Warm Springs Creek Mine near Garrison, MT). In 
Idaho, five companies operate six mines. J. R. Simplot Co. 
operates the Gay and Conda-Smokey Canyon Mines. The 
Gay Mine produces acid-grade phosphate rock for Simplot 
and electric furnace feed (elemental phosphorus production) 
for FMC Corp. Smokey Canyon Mine phosphate rock is 
calcined in Conda and shipped to Pocatello for phosphoric 
acid production. Stauffer Chemical Co. ships phosphate rock 
from its Wooley Valley Mine to electric furnaces at Silver 
Bow, MT. The Conda Partnership, jointly owned by Beker 
Industries Corp. and by Western Cooperative Fertilizers 
Ltd., produces phosphate rock from the Maybe Canyon (also 
known as Dry Valley) and Champ Mines for phosphoric acid 
feed. These two operations were closed throughout most of 
1986 owing to the financial difficulties of Beker Industries. 
Monsanto sends phosphate rock from its Henry Mine (and 
its North Henry Extension) to electric furnaces at Soda 
Springs, ID. Alumet Corp. produces phosphate rock at its 
Lane Creek Mine. The study also includes the future poten- 
tial developments of Enoch Valley (Monsanto), Diamond 
Creek (Alumet), Rasmussen Ridge (Stauffer), and Dry 
Valley (FMC), all in Idaho, as well as 42 additional explored 
prospects in Utah and Wyoming. 

Expected future production from the operations in 
Tennessee and some of the operations in Idaho is included 
only indirectly in the market models, since none of the 
material at those mines is used for fertilizer production (the 
market that the model simulations focus on). These proper- 
ties cannot be presumed to respond to the demand and price 
conditions in the fertilizer market, and a prespecified pro- 
duction level is entered into the market model data base 
as production from other sources. 



1 The worldwide ownership and status information reported in this appen- 
dix is correct for the period of the analysis (1985). 



37 



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42 



OTHER NORTH AMERICA 

The only other significant producing phosphate rock 
mine in North America is located in Mexico, the San Juan 
de la Costa Mine, and is owned by ROFOMEX (a Govern- 
ment-controlled company). ROFOMEX is also developing 
the Santo Domingo deposit and could have it operational 
by around 1990 if present difficulties are overcome. The La 
Negra Mine in Mexico is a very small producer and was 
not included in this study. 

There are two phosphate rock prospects in Canada, the 
Cargill deposit owned by Sherritt Gordon Mines and the 
Martison Lake deposit owned by Cambell Resources and 
New Venture Mines. There is interest in developing these 
mines together, based upon the higher grades of phosphate 
at Cargill and the significant quantities of recoverable co- 
lumbium at Martison Lake, although little developmental 
work has been done. 



BRAZIL 

Brazil accounts for the only significant production of 
phosphate rock in South America. Seven mines are operated 
by six companies in Brazil, and all were included in this 
study along with four additional explored prospects (most 
in some developmental stage). Arafertil operates both of the 
Araxa Mines, while Fosfago de Goias, S.A., Goias Fertili- 
zantes, Serrana, S.A., Fertilizantes Fosfatos, S.A., and 
Fosfertil, S.A., operate the Catalao-Fosfago, Catalao- 
Goiasfertil, Jacupiranga, Patos de Minas, and Tapira Mines, 
respectively. The deposits of Anitapolis, Ipanema, Itataia, 
and Olinda-Paulista-Igarassu were all included in the study, 
with Anitapolis' having the greatest potential for further 
development and capable of being on-stream by 1987. 

Nearly all of Brazil's phosphate rock production goes 
to in-country phosphoric acid plants (except for a small 
quantity used as direct application material) since Brazil 
has the intent to be self-sufficient in fertilizer production 
(and nearly is). 



OTHER SOUTH AMERICA 

Three other deposits in South America were included 
in this study: Pesca-Conejera-Sardinata in Colombia (owned 
by Econimas, a Government-controlled company), Bayovar 
in Peru (owned by Probayovar, S.A., also a Government- 
controlled company), and Riecito in Venezuela (owned by 
Petroquimica de Venezuela). Although small quantities of 
phosphate rock have, in the past, been produced at both 
Pesca and Riecito, this study assumes that both deposits 
are nonproducers and that to attain significant levels of 
production would necessitate extensive development. 
Neither is expected to be developed this decade. The 
Bayovar deposit has had numerous plans for development 
in recent years and could be operational by the early 1990's 
if the owner can secure the necessary financing. A small 
deposit in Antofagasta, Chile, owned by Corfo, was not 
included in this study. 



MOROCCO AND WESTERN SAHARA 

Morocco and Western Sahara (whose phosphate rock 
production is controlled by the Moroccans) represent the 



largest phosphate rock producers in Africa, third largest 
in the world next to the United States and the U.S.S.R. All 
of the mines and deposits in Morocco are owned and 
operated by the Office Cherifien des Phosphates (OCP), a 
Government-controlled company. The OCP presently 
operates 10 mines in Morocco and 1 in Western Sahara (all 
included in this study). 

The Khouribga district, located approximately 140 km 
southeast of Casablanca, contains five underground opera- 
tions (all grouped together as one mine for this study) as 
well as the open pit mines of Daoui (includes Recette-4) and 
Meraa el Arech. Most of the Khouribga phosphate rock is 
beneficiated at the various washers and dryers, or at the 
new dry beneficiation plant in that region. Nearly all 
Khouribga phosphate rock is used for export from the port 
in Casablanca. 

The Youssoufia district, located 70 km east of the port 
of Safi, contains four underground operations producing 
"white" rock and "black" rock (two each), which are grouped 
into two mines for the purposes of this study. The 
Youssoufia phosphate rock is beneficiated at the various 
screening, drying, and calcining plants in the district before 
being used in Moroccan phosphoric acid plants. The new 
open pit Ben Guerir Mine (commissioned in 1980), located 
on the northern edge of the Youssoufia district, was also 
included in the study. The phosphate rock is screened on- 
site, then washed in Safi, and is used for phosphoric acid 
production. 

The study also includes nonproducing deposits in both 
the Khouribga district (Recette-10, Sidi Chennane, and 
others) and the Youssoufia district (Sidi Hajjaj) as well as 
the large deposits in the Meskala district. Sidi Chennane 
and Sidi Hajjaj are the most likely to be developed next, 
possibly by the early 1990's. Daoui Nord in the Khouribga 
district (recently mined out) and the open cast mine in the 
Youssoufia district (recently permanently closed) were not 
included in the study. The Bou Craa mine in Western 
Sahara, whose phosphate rock is used by the OCP for export, 
was also included in the study. Because of the political 
instability of the region, this mine has frequently been shut 
down since its opening in 1973, although it is presently pro- 
ducing significant quantities of phosphate rock. 

OTHER AFRICA 

Tunisia is also a significant producer of phosphate rock 
in north Africa. There are eight producing mines in Tunisia, 
all owned and operated by the Government-controlled com- 
pany, CIE des Phosphates de Gafsa (all are included in this 
study). Except for one open pit mine, Kef Eschfair, all the 
producers are underground operations. Their names are 
Kalaa Khasba, M'Dilla, M'Rata, Metlaoui, Moulares, 
Redeyef, and Sehib. The nonproducing deposits of Djellabia, 
Kef Eddour, Oum El Khecheb, and Sra Ouertane were also 
included in the study. All four are planned open pit mines 
that could be developed by the late 1980's or early 1990's. 
Tunisian phosphate rock is both exported and used in the 
domestic fertilizer industry. 

The only mine in Algeria included in this study is Djebel 
Onk, owned by SONAREM, a Government-controlled com- 
pany. All its phosphate rock is exported. 

The countries of Togo and Senegal in Western Africa 
are significant producers of phosphate rock (most of which 
is exported). In Senegal the study included the Government- 
controlled operations of Pallo (Theis) and Tiaba-Tobene. In 
Togo, the study included the Government-controlled 



43 



Hahotoe-Kpogame Mine as well as the Government- 
controlled Dagbati deposit, which, if it receives the 
necessary financing, could be developed by the early 1990's. 

Other African mines and deposits included in this study 
are the Lacunga River deposit in Angola, the South African 
Palabora Mine (owned and operated by Foskor— the 
Phosphate Development Co.), the developing Sukulu Hills 
deposit in Uganda (owned by Sukulu Mines Ltd.), and the 
Dorowa Mine in Zimbabwe (owned and operated by the 
African Explosive and Chemical Industry). Development of 
the Sukula Hills columbium-phosphate deposit in Uganda 
will be primarily determined by the market for columbium, 
which will be the principal source of revenue. 

Not included in the study are the Tilemsi prospect in 
Mali, the Glenover and Langbaan Mines in the Republic 
of South Africa (both very small), the Minjingu prospect in 
Tanzania, plus the small prospects in Upper Volta and 
Zambia. Very little information is publicly available on 
these deposits, and they appear to be quite small in rela- 
tion to current world standards. They are also small enough 
to be excluded based on the criteria for deposit selection that 
are explained in the availability methodology section in 
appendix D. 



ISRAEL AND JORDAN 

Phosphate rock production from Middle Eastern coun- 
tries has become more prevalent in recent years, particu- 
larly from Israel and Jordan. Israel has three producing 
mines, Arad, Nahal Zin, and Oron, all owned and operated 
by Negev Phosphates Ltd., a Government-controlled com- 
pany. All three are included in this study, as well as the 
Beersheba deposit, which is also owned by Negev 
Phosphates. Beersheba is in early developmental stages and 
could be in production by the early 1990's. The recently 
mined-out Maktesh deposit was not included in this study. 
Two producing mines in Jordan were included in this study, 
the El Hasa and El Abiad Mines (combined as one) and the 
Ruseifa Mine. These mines, as well as the developing Esh 
Shidiyah deposit, are owned and operated by the Jordan 
Phosphate Mining Co. (Government controlled). Esh 
Shidiyah is planned to be on-stream by the late 1980's. Most 
phosphate rock mined in Israel and Jordan is exported. 



OTHER MIDDLE EAST 

Other producing mines in the Middle East included in 
this study are the Akashat mine in Iraq (Government 
owned), Syria's Kneifess, Sharkya A, and Sharkya B Mines 
(all three owned and operated by General Co. for Phosphates 
(Gecopham), a state-controlled agency), and the Mardin 
(Mazidag) mine in Turkey (owned by Etibank, a Govern- 
ment-controlled company). The West Thaniyat deposit 
(Government owned) in Saudi Arabia is the only other Mid- 
dle Eastern nonproducer included in the study. Undeveloped 
deposits in the Middle East not included in the study are 
Turayf in Saudi Arabia and the Syrian deposits of Al Haberi 
and Wadi al Rakheime. Resources at these deposits can be 
classified only as "inferred" based upon the information 
available. 

EUROPE 

Only two European mines or deposits were included in 
the study, both in Finland, the Siilinjarvi Mine (owned and 
operated by Kemira Oy— a Government-owned company) 
and the Sokli deposit (owned by Rautaruukki Oy). No real 
development has taken place at Sokli. Small deposits in 
Greece and Yugoslavia were not included in this study 
because of their size and a lack of publicly available data. 



ASIA 

The only producing Asian phosphate rock mine included 
in the study is the Jhamarkotra mine in India (owned by 
Rajasthan State Mines & Minerals, Ltd.). The two develop- 
ing Hazara mines in Pakistan (Kakul and Lagarban), both 
owned by Sarhad Development Authority (Government of 
Pakistan) were also included in this study. Kakul was to 
be started up in 1986, with Lagarban only a few years after. 
Also included in the study is the Eppawella deposit of Sri 
Lanka. That deposit is owned by the Government (SMMDL), 
and development of it would be undertaken by Agrico 
Chemical Co. Various small mines and potential prospects 
located in India were not included in the study because of 
their size and a lack of publicly available information. 



EGYPT 



OCEANIA 



Egypt is also a significant Middle Eastern phosphate 
rock producer, although most of its production is used for 
internal domestic markets (both fertilizer production and 
direct application material). There are five producing 
phosphate rock mines owned by three companies in Egypt 
(all are included in the study). The Abu Zaabel Fertilizer 
Chemical Co. owns and operates the East and West Sabaiya 
Mines, and the Red Sea Phosphate Co. owns and operates 
the Quseir and Safaga Mines. Hamrawein is owned and 
operated by Misr Phosphates. Only one nonproducing Egyp- 
tian deposit was included in the study. The Abu Tartur 
deposit, owned by the Egyptian Government, has over the 
years undergone various stages of preliminary development. 
Because of its remoteness and high estimated costs of 
production, this mine may not be developed for many years. 



Two mines in the Oceania region, Nauru (owned and 
operated by the Nauru Phospha e Corp.) and Christmas 
Island (owned and operated by the Phosphate Mining Co. 
of Christmas Island) were included in the study. Most of 
the phosphate rock produced at these mines supplies fer- 
tilizer production in Australia. The Duchess Mine in 
Australia (owned by Western Mining Corp.) was also in- 
cluded in this study. It has been shut down most of the time 
since its opening in 1975 primarily because of marketing 
problems due to impurities in the phosphate rock product 
and high transportation costs to get it to the market. Other 
nonproducing deposits in Australia included in the study 
are D-Tree, Lady Annie and Lady Jane, Laverton, and 
various northern Queensland deposits (grouped together as 
one deposit for the study). 



44 



APPENDIX B.-ACID AND FERTILIZER PLANTS INCLUDED IN NETWORK^ 



Country and location 
Algeria: Annaba 

Australia: 

Greelong 

Kooragang Is 

Kwinana 

Pinkenba 

Yarraville 

Austria: 

Linz 

Pischelsdorf 

Bangladesh: Chittagong . 

Belgium: 

Engis 

Ostende 

Rieme 

Sauvegarde 

Zandvliet 



Company Associated port 

SONATRACH Annaba. 

PIVOT Melbourne. 

Australian Fertilizer Brisbane. 

CSBP and Farmers Perth. 

Consolidated Fertilizer . . Brisbane. 

ICI Australia Do. 

Chimie Linz Rotterdam. 

Donan Chemie Do. 

Bangladesh Development Chittagong. 



Country and location 



Company 



Associated port 



Brazil: 

Araxa* 

Camacari* . . 
Cubatao 
Imbituba 
Jacupiranga . 
Piacaquera. . 
Uberaba 



Bulgaria: 

Dmitrovgrad 

Povelyanovo (Devnia) 

Canada: 
Alberta: 

Calgary 

Ft. Saskatchewan . 

Medicine Hat 

Red Water 

British Columbia: 

Kimberley 

Trail 

New Brunswick: 

Belledune 

Ontario: 

Courtright 

Pt. Maitland 



China: 
Guiki*. . . . 
Haikou . . . 
Jangxi . . . 
Nanking . . 
Zhanjang* 



Cyprus: Vasilikos 

Czechoslovakia: Postorna 
Denmark: Fredericia 



Egypt: 
Kafr-EI-Zayat 
Safaga* 



Finland: 
Siilinjarvi 
Uusikaupunki . 



France: 

Ambares 

Bordeaux 

Douvrin 

Grande Couronne 

Le Boucau 

Do 

Le Havre 

Ottmarsheim 

Roches de Condrieu . . 
Rouen-Grand Quevilly . 

Sete 

Wattrelos 



Prayon-Rupel (OCP) 

BASF 

Gesa 

Prayon-Rupel (OCP) 
BASF 



Arafertil 

Caraiba Metais 

Copebras 

Carboquimica . 
Quimbrazil 
Petroquisa 
Fosfertil 



Bulgarian Government 
. . do 



Western Coop . 
Sherritt Gordon 
Western Coop . 
Esso 



Cominco. 
. . do . . . . 



Noranda . 



CIL . 

IMC 



China Government 

..do 

..do 

..do 

. . do 



Hellenic Mining 
Fosfa Postorna 
Superfos 



Abu Zaabal 

Egyptian Chemical 



Kemira Oy 
..do 



Cofaz 

Gesa 

APC 

..do 

Satec 

Socadour 

Cofaz 

APC-BASF 

Rhone-Poulenc 

Gesa 

Cofaz 

PCUK 



Germany, Federal Republic of: 
Embsen Chemische Werke Huels 

See notes at end of table. 



Do. 
Do. 
Do. 
Do. 
Do. 



NAp. 

NAp. 

NAp. 

NAp. 

NAp. 

Belem. 

NAp. 



Burgas. 
Do. 



NAp. 
NAp. 
NAp. 
NAp. 

NAp. 
NAp. 

NAp. 

NAp. 
NAp. 



Shanghai 
Do. 
Do. 
Do. 
Do. 

Vasilikos Bay. 

Constanta. 

Do. 



Qusier. 
Do. 



NAp. 
NAp. 



Bordeaux. 

Do. 
Marseilles. 
Bordeaux. 

Do. 

Do. 

Do. 

Do. 
Marseilles. 
Bordeaux. 
Marseilles. 
Bordeaux. 



Rotterdam. 



Germany, Federal Republic of- 

Knapsack 

Krefeld 

Nordenham 



-Continued 
Hoechst-Werke 
Guano-Werke . . 
..do 



Greece: 
Drapetsona 
Nea Karvali 



Thessaloaika 



India: 
Alwaye 



Ambernath 
Baroda . . . 
Cochin . . . 



Debari . . 
Ennore . . 
Haldia* . . 
Do ... . 
Khetri . . . 
Paradeep* 
Sindri . . . 
Trombay . 



Tuticorin 

Vishakhapatnam 

Indonesia: Gresik* 



Hellenic Chemical Prod 
Phosphatic Fertilizer 

Industry. 
Chemical Industries of 

Northern Greece. 



Fertilizer & Chemical 

Travancore. 
Albright-Morarji-Pandix . . 
Gujarat State Fertilizer . . 
Fertilizer & Chemical 

Travancore. 

Hindustan Zinc 

EID Parry 

Hindustan Fertilizer 

Hindustan Lever 

Hindustan Copper 

Paradeep Phosphates . . . 
Fertilizer Corp. of India . . 
Rashtriya Chemical & 

Fertilizer. 
Southern Petrochemicals 
Coromandel Fertilizers . . 

Petrokimia 



Iran: Bandar Khomeini 
Iraq: Al Qaim 



Israel: 
Arad . 

Do. 
Haifa 

Do. 



Khomeini Chemicals . . . 
Iraq Ministry of Industry 



Negev Phosphates . . 
Rotem Fertilizers 
Fertilizer & Chemical 
Haifa Chemicals 



Italy: 

Crotone 

Gela 

Porto Marghera 
Do 



Japan: 

Akita 

Befu 

Chiba 

Goi 

Hachinohe 
Hiroshima 
Hokkaido . 
Kurosaki . . 
Minamata . 
Miyako 



Aussidet 

ISAF 

Aussidet 

Fertimont (Montedison) 



COOP Chemical . . . 

Taki Fertilizer 

Asahi Glass 

Nihon Rinsan 

COOP Chemical . . . 

Toyo Rinsan 

Mitsui Toatsu 

Mitsubishi Chemical 

Chisso 

COOP Chemical . . . 



Nanyo Toyo Soda 



Niigata 
Onahama . 
Toyama . . 

Ube 

Do 



COOP Chemical 
Nippon Kasei . . . 
Nissan Chemical 
Central Glass . . . 
Ube Industries . . 



Jordan: Aqaba 



Korea, Republic of: 

Chin Hae Chin Haee Chemical . 

Ulsan Yong Nam Chemical . 

Yosu Namhae Chemical . . . 



Lebanon: Selaata 



Mexico: 
Coatzacoalcos . . . 

Guadalajara 

Lazaro Cardenas* 

Minatitlan 

Monclova 

Pajaritos 



Lebanon Chemical 



Fertimex 

Ind. Quimicas 
Fertimex 

do 

do 

do 



Morocco: 
Jorf Lasfar* 
Do 



OCP (Maroc Phosphore III) 
OCP (Maroc Phosphore IV) 



Do. 
Do. 
Do. 



Athens. 
Do. 



Do. 



Bombay. 

Do. 
Do. 
Do. 

NAp. 

Vishakhapatnam. 

Bombay. 

Do. 
NAp. 
Bombay. 

Do. 

Do. 

Vishakhapatnam. 
Do. 

Surabaya. 

Abadan. 

NAp. 



Port Ashdod. 
Do. 
Do. 
Do. 



Crotone. 

Do. 
Venice. 

Do. 



Niigata. 
Yokohama. 

Do. 

Do. 

Do. 
Hiroshima. 
Yokohama. 
Niigata. 
Hiro. 
Yokohama. 

Do.. 
Niigata. 
Yokohama. 
Niigata. 

Do.. 

Do- 



Jordan Fertilizer Industry Aqaba. 



Pusan. 
Do. 
Do. 

NAp. 



Vera Cruz. 

NAp. 

NAp. 

NAp. 

Tampico 

NAp. 



Casablanca 
Do. 



ACID AND FERTILIZER PLANTS INCLUDED IN NETWORK 1 — Continued 



45 



Country and location 



Company 



Associated port 



Country and location 

U.S.S.R.: 

Amalyk 

Balakovo 

Byelorechensk 

Chardzou 

Cherepovets 

Dzhambul 

Gomel 

Kedainai 

Kingisepp 

Konstantinovka 

Krasnouralsk 

Krym 

Melenz 

Revda 

Rozdol 

Samarkand 

Sumy 

Uvarovo 

Volkhov 

Voskresensk 

United Kingdom: 

Aberdeen 

Belfast 

Billingham 

Immingham 

Leith 

Severnside 

Whitehaven 

Do 

United States: 
California: 

Helm 

Lathrop 

Florida: 

Bartow 

Do 

Do 

Ft. Meade 

Do 

Mulberry 

Do 

New Wales 

Nichols 

Pierce 

Do 

Piny Point 

Plant City 

Suwannee River 

Swift Creek 

Tampa 

Idaho: 

Conda 

Pocatello 

Illinois: 

Depue 

Joliet 

Louisiana: 

Donaldsonville 

Geismar 

Taft 

Uncle Sam 

Mississippi: Pascagoula 
North Carolina: 

Aurora* 

Lee Creek 

Texas: Pasadena 

Utah: Garfield 

Wyoming: Rock Springs* 

Venezuela: Puerto Moron . 

Vietnam: Haiphong* 



Company 



Associated port 



Morocco — Continued: 

Nador* 

Safi 

Do 

Do 

Do 



Netherlands: 

Pernis 

Sas Van-Ghent 

Vlaardingen . . . 

Do 



Pakistan: Hazara* 
Peru: Bayovar* . . . 



Philippines: 
Isabel* . . 
Limay . . . 
Toledo . . 



Poland: 

Gdansk 

Krakow 

Szczecin (Police I & II) 
Wizow 



Portugal: 
Barreiro 
Setubal . 



Romania: 

Bacau 

Navodari 

Turnu Magurele 

Valea Calugareasca . . 

Senegal: 

M'Bao 

Tiaba-Daroj 

South Africa, Republic of: 

Modderfontein 



Phalaborwa . . . 
Pochefstroom . 

Richard's Bay . 
Rustenburg . . . 
Somerset West 



Spain: 
Huelva 
Do.. 
Do.. 



Sri Lanka: Trincomalee* 



Sweden: 
Halgingborg 
Landskrona 



OCP (Maroc Phosphore V) 
OCP (Maroc Chemie I) . . . 
OCP (Maroc Chemie II) . . . 
OCP (Maroc Phosphore I) . 
OCP (Maroc Phosphore II) 



UKF 

NV Znd Chemie 
Windmill-Holland 
Windmill-Holland 



National Fertilizer 
Probayovar 



Philphos Fertilizer 
Planters Products 
Atlas Fertilizer . . . 



Polish Government 

..do 

..do 

..do 



Quimigal 
SAPEC . . 



Romanian Government . 

..do 

..do 

. . do 



SIES. 
ICS.. 



Triomf Fertilizer and 

Chemicals. 

Sentrachem 

Triomf Fertilizer and 

Chemicals. 

..do 

Omnia Phosphates . 
Triomf Fertilizer and 

Chemicals. 



Fertiberia 
FESA . . . 
Foret . . . 



Eppawala Phosphates 



Boliden KGMI 
Supra 



Syria: Horns Syrian Government 



Taiwan: 
Kaohsiung 
Do 



China Phosphate . 
Taiwan Fertilizer . 



Tanzania: Tanga . 
Togo: Lome* 



Tunisia: 
Gabes 

Do.. 
Gafsa* 
Sfax . . 

Do.. 



Tanzania Fertilizer. 

Soc. Togolaise 
d'Engraing. 



ICM I III . 
SAEPA . . 
IOG .... 
Siape (A) 
Siape (B) 



Turkey: 
Bandirma 

Eladig 

Iskenderun . . . 

Mersin 

Yarimca-lzmit . 



Iskur 

Azot Sanayii 

Gubre Fabrikalari .... 
Akdeniz Gubre Sanayii 
Gubre Fabrikalari .... 



Do. 
Do. 
Do. 
Do. 
Do. 



Rotterdam 
Do. 
Do. 
Do. 

Karachi. 

Lima. 



Manilla 
Do. 
Do. 



Gdansk. 
Do. 
Do. 
Do. 



Lisbon. 
Do. 



Constanta. 
Do. 
Do. 
Do. 



Dalcar. 
Do. 

Richard's Bay. 

Do. 
Do. 

Do. 
Do. 
Do. 



Huelva. 
Do. 
Do. 

Trincomalee. 



Malmo. 
Do. 

Tartous. 

Kaoshiung. 
Do. 

Zanzibar. 

Kpeme. 



Gabes. 
Do. 
Do. 
Do. 
Do. 



Istanbul. 
Do. 
Do. 

Mersin. 
Istanbul. 



Yugoslavia: 

Hrastnik 

Kosovska Mitrovica 

Kutina 

Prahovo 

Sabac 

Subotica 

Titov Veles 



Zimbabwe: Harare 



U.S.S.R. Government 

.do 

.do 

.do 

.do 

.do 

do 

.do 

.do 

.do 

.do 

.do 

.do 

.do 

.do 

.do 

.do 

.do 

.do 

.do 



SAI 

Richardson's Fertilizer 

ICI 

Norsk Hydro 

SAI 

ICI 

Albright & Wilson I . . . 
Albright & Wilson II . . . 



Simplot. 
. . do . . . 



CF 

Grace 

USSAC-Grace 

USSAC 

USSAC-Grace 

IMC 

Royster 

IMC 

Conserv 

Agrico 

Farmland .... 

AMAX 

CF 

Occidental . . . 

..do 

Gardinier .... 



Beker . . 
Simplot . 

Mobil . . 
Olin . . . 



Agrico 

Allied 

Beker 

Freeport 

Mississippi Chemicals . 

NCPC 

Texasgulf 

Mobil 

Chevron 

..do 



NAp. 

NAp. 

NAp. 

NAp. 

NAp. 

NAp. 

NAp. 

NAp. 

NAp. 

NAp. 

Murmansk. 

NAp. 

NAp. 

Murmansk. 

NAp. 

Murmansk. 

Do. 

Do. 

Do. 
NAp. 



Liverpool. 
Do. 
Do. 
Do. 
Do. 
Do. 
Do. 
Do. 



NAp. 
NAp. 

Tampa. 

Do. 

Do. 

Do. 

Do. 

Do. 

Do. 

Do. 

Do. 

Do. 

Do. 

Do. 

Do. 
Jacksonville. 

Do. 
Tampa. 

NAp. 
Seattle. 

NAp. 
NAp. 

Tampa. 
Do. 
Do. 
Do. 
Do. 

Morehead City. 

Do. 
Tampa. 
Seattle. 
NAp. 



Tripoliven Caracas. 



Vietnam Government 



Tovarna Kern Izdekai 
Hemijska Industrija . . 

INA 

Hemijska Industrija . . 

. . do 

. . do 

. . do 



Zimbabwe Phosphate 
Industry. 



NAp. 



Dubrovnick. 
Do. 
Do. 
Do. 
Do. 
Do. 
Do. 

Richard's Bay. 



NAp Not applicable. 

1 All are assumed producers or presently shut down, unless denoted with asterisk, which indicates planned plant (or presently under construction) as of January 
1984. Ownership and status also as of 1984. 



46 



APPENDIX C— PHOSPHATE GEOLOGY, RESOURCES, MINING, AND PROCESSING 



GEOLOGY 

The element phosphorus is widely abundant in the 
Earth's crust, comprising approximately 0.11 pet. 
Phosphate (phosphorus pentoxide P 2 5 ) concentrations exist 
throughout the world in both igneous and sedimentary 
rocks, primarily in the form of the mineral apatite. In 
igneous rocks, it is generally as fluorapatite, Ca 5 (P0 4 ) 3 F, 
and in sedimentary rocks, generally as hydroxy 
fluorapatite, Ca 5 (PO„) 3 OH,F, or as carboxyapatite, Ca 5 (P0 4 , 
C0 3 OH) 3 F. 

The majority of the phosphate resources throughout the 
world are classified as sedimentary marine phosphorite 
deposits. The two most significant types are deposits formed 
in areas of upwelling water and those formed in warm 
climates, particularly along eastern coasts. The Cretaceous 
and Eocene deposits of western and northern Africa and the 
Middle East as well as the Permian Phosphoria Formation 
of the Western United States are the best examples of 
deposits formed as a result of upwelling waters. These 
deposits were formed by chemical and biological precipita- 
tion of phosphate in areas of upwelling, phosphate-rich 
marine waters. The phosphate ore typically occurs in thin, 
marine sediment sequences in these deposits, and the 
phosphate itself is typically carbonaceous, consisting of 
pellets and nodules. The Miocene deposits along the 
southeastern coast of the United States are the best ex- 
amples of deposits formed in warm climates. These deposits 
are economically minable if they have been reworked by 
submarine currents and/or subjected to weathering (as in 
the Southeast United States). The phosphate ore typically 



consists of loose, poorly consolidated phosphatic sands, and 
soft calcareous clays, marls, etc. 

In igneous rocks, apatite usually occurs as intrusive 
masses or sheets, as hydrothermal veins or disseminated 
replacements, as marginal differentiations, or as 
pegmatites. Intrusive masses are the most common occur- 
rence of igneous apatite, usually associated with alkaline 
igneous rocks including carbonatite, ijolite, nepheline 
syenite, and pyroxenite. Examples of these types of deposits 
are in the Kola Peninsula in the U.S.S.R., the Palabora 
complex in the Republic of South Africa, and the car- 
bonatites of southern Brazil. 

A final type of phosphate deposit is the island phosphate 
deposit, which is formed through the large accumulation 
of guano from sea birds. The composition of these deposits 
varies with the degree of leaching by surface waters. Decom- 
posed guano is primarily calcium phosphates. The deposits 
on Nauru and Christmas Islands in the Pacific and Indian 
Oceans, respectively, are the best examples of guano 
deposits. A more detailed description of world phosphate 
deposit geology is contained in Bureau IC 8989, "Phosphate 
Rock Availability-World'^). 1 

RESOURCES 

Demonstrated world resources in terms of recoverable 
phosphate rock are estimated to be nearly 36.6 billion mt 
(table C-l and figure C-l). North Africa has an enormous 



1 Italicized numbers in parentheses refer to items in the list of references 
preceding appendix A. 



Table C-1 .—Summary of world demonstrated phosphate resources as of January 1985 



Region and country 


In situ ore 

tonnage, 

10 6 mt 


In situ 
grade, 
wt pet 
P 2 5 


Recoverable 

rock product, 

10 6 mt 


Rock product 

grade, wt pet 

P 2 O s 


Region and country 


In situ ore 

tonnage, 

10 6 mt 


In situ 
grade, 
wt pet 
P 2 O s 


Recoverable 

rock product, 

10 6 mt 


Rock product 

grade, wt pet 

P2O5 


MEC's: 
North America: 
Canada and 

Mexico 


n 

26,625 

( 1 ) 
2,613 

186 

1,247 
39,005 

39 
21,426 

834 


( 1 ) 

9 

( 1 ) 
10 

12 

22 
28 

16 
6 

27 


199 
6,104 

6,303 


34 
30 

34 
30 

42 

31 
31 

34 
37 

34 


MEC's— Continued 
Middle East: 

Egypt 

Iraq, Saudi Arabia, 

and Turkey 

Israel 

Jordan 

Syria 

Total 

Oceania: 
Australia and 
Christmas Island . 
Nauru 

Total 

Europe: Finland 

Asia: India, Pakistan 
and Sri Lanka 

Total MEC's 

CPEC's:* 
China 


1,755 

739 

357 

1,169 

447 

1,588 
22 

1,120 
107 

337 

(1) 


26 

21 
26 
26 
24 

18 
38 

6 
25 

26 

(1) 


1,006 

304 
190 
511 
204 


28 


United States 

Total 


32 
32 
33 




387 

415 
802 


30 


South America: 
Brazil 


2,215 




Colombia, Peru, 
and Venezuela. . . 

Total 


611 
14 


33 




35 

545 

21,559 
22,104 


39 


East Africa: Uganda. . 


625 




North Africa: 
Algeria and Tunisia 
Morocco and 
Western Sahara . . 


114 
65 


37 
32 


Total 


35,055 




Southern Africa: 


11 

2,544 
2,555 




Angola and 

Zimbabwe 

Republic of South 

Africa 


208 
1,333 


28 


Total 


U.S.S.R 

Total CPEC's 
Total world 


33 




237 


1,541 




Senegal and Togo . 


36,596 













1 1n situ tonnage and grades are not totaled or averaged because deposits of different geologic types have been combined (e.g., igneous and sedimentary). 
2 Values have not been updated from previous world study; they remain as of Jan. 1981. 



47 



phosphate rock resource (22 billion mt), accounting for 
approximately 60 pet of the total demonstrated phosphate 
rock resource estimated for the world. The United States 
is a distant second, with 6.1 billion mt of demonstrated 
phosphate rock resources, which is over 17 pet of the total. 
Demonstrated resources for the CPEC's account for only 4 
pet of the total. This is more a reflection of a lack of data 
for these countries than a lack of actual resources. 

On the basis of geologic type, sedimentary deposits con- 
tain nearly 90 pet of the total demonstrated phosphate rock 
resource. Significant igneous deposits, which account for 
the remaining demonstrated resources, are located in 
Canada, Brazil, the Republic of South Africa, Finland, and 
the U.S.S.R. 



Other MEC's. 
13 pet 



North Africa. 
60 pet 




CPEC's. 4 pet 



North America, 
17 pet 



through pipes to the beneficiation plant. Most phosphate 
ore or overburden requires little or no drilling or blasting 
prior to excavation. Ore in north Africa is a notable excep- 
tion to this, and blasting is frequently required to mine 
Moroccan deposits. 

Open pit mining is typically employed to recover hard 
igneous carbonatite rock. The method differs from strip min- 
ing in that the waste is stored separately instead of being 
dumped into mined-out areas. Benching of the waste and 
ore is often necessary owing to the thickness or depth of 
the ore. Drilling and blasting are more common in open pit 
mining than in strip mining. 

Dredging is employed at a few deposits throughout the 
world. It is generally used in special hydrologic situations 
in which the overburden and phosphate horizon are uncon- 
solidated clay and sand. The Wingate Creek Mine in Florida 
(United States) is a dredging operation, as will be the pro- 
posed Santo Domingo operation in Mexico. Texasgulf 
Chemical Corp., North Carolina, uses a dredge to remove 
overburden at its Lee Creek Mine. Pumps dewater the pit, 
and draglines mine the ore from a bench. 

The relatively low unit value of phosphate rock makes 
underground mining methods generally unprofitable. 
However, steeply dipping phosphate beds or high stripping 
ratios sometimes make the use of underground mining 
techniques preferable. In such cases, highly mechanized 
room-and-pillar, longwall caving, and overhand-stoping 
methods have been used successfully. The majority of 
producing underground phosphate mines are located in 
northern Africa. 



TOTAL RESOURCES. 36.596 X 10 s mt 

FIGURE C-1. — Demonstrated phosphate rock resources, by 
region, January 1985. 

Additionally, the United States has an estimated 7 
billion mt of inferred phosphate rock resources. The total 
inferred resources for all MEC's are over 20 billion mt. 

MINING METHODS 

Over three-quarters of the phosphate rock produced in 
MEC's today is recovered by surface mining methods. The 
remainder is recovered by underground mining techniques, 
predominantly in Morocco and Tunisia. Table A-l in appen- 
dix A shows individual deposit data such as mining and 
milling methods, status, capacity, grade, deposit type, 
ownership, and initial year of production for the deposits 
and mines included in this study. 

The two major surface mining methods used in the 
phosphate industry are strip level mining and open pit min- 
ing. A third method, dredging, is used in special situations. 

Strip level mining is the predominant mining method 
used because of the tabular, bedded, sedimentary nature 
of most phosphate deposits. In this method, the overburden 
is stripped from an initial cut and stockpiled. The phosphate 
ore is excavated while a second, parallel cut is being 
stripped of overburden. The waste from the second cut is 
side-cast into the first cut. This cycle is repeated as the min- 
ing proceeds. 

Ore is removed by a dragline, scraper, or shovel-truck 
operation. In Florida, draglines dump the ore into a slurry 
pit where the phosphate material is slurried and pumped 



BENEFICIATION METHODS 

In almost all cases, the run-of-mine phosphate material 
has to be beneficiated. The basic beneficiation methods 
employed in the phosphate industry are sizing, washing, 
flotation, and calcining. A phosphate beneficiation plant 
may use one or more of these methods to produce a 
marketable product. 

Average feed grade, average product grade, and average 
mill recovery are shown in table C-2 for the various MEC 
regions. Feed grade is here defined as the recoverable grade 
of the ore that feeds the mill. As shown in this table, the 
southeast U.S. producers have the second lowest average 
feed grade but the highest average recovery (at 10.9 pet P 2 5 
and 79.0 pet, respectively). The high recovery results from 
the use of flotation for most of the material beneficiated. 
Northern African producers, on the other hand, have an 
average feed grade of 26.0 pet P 2 5 and a mill recovery of 
only 69.8 pet because of losses of fine material during 
washing. 

To reduce long-distance transportation costs, it is 
important to remove as much water from the phosphate rock 
as possible by drying. Phosphate rock also must be dried 
if the grinding circuit (usually located at a phosphoric acid 
plant) is designed for dry phosphate rock. Many grinding 
and phosphoric acid plants will now accept wet phosphate 
rock. Either rotary dryers or fluid-bed dryers are used to 
dry the phosphate rock. The dry phosphate rock is stored 
in silos or bins until shipped. 

Some operations calcine rock to remove organic matter, 
which often causes problems with acid manufacture. Many 
of the operations in Idaho and Morocco use calcining. 



48 



Table C-2.— Phosphate mill plant operating parameters, by region 1 



Region Producing mines 

Feed Product Recovery, 

grade, pet grade, pet pet 

P 2 5 P2O5 

North America: 

Southeast United States 10.9 30.4 79.0 

West United States 22.2 31 .2 71 .3 

South America 9.6 33.8 58.6 

North Africa 26.0 32.2 69.8 

West Africa 27.1 33.3 40.5 

Middle East 24.7 31 .4 71 .4 

Australia W W W 

W Withheld to avoid disclosing individual deposit data. 

1 Feed grade, product grade, and recovery are weighted averages for all deposits in each region. 





Nonproducing mines 




Feed 


Product 


Recovery, 


grade, pet 


grade, pet 


pet 


P 2 O s 


P2O5 




5.7 


30.5 


79.6 


21.3 


27.7 


80.9 


9.1 


31.8 


69.9 


24.5 


31.5 


67.4 


W 


W 


W 


24.9 


32.6 


64.3 


17.5 


34.0 


86.5 



BYPRODUCTS AND DELETERIOUS MATERIALS 
Byproducts 

Phosphate rock contains several materials that, in most 
cases, are either very expensive to extract as marketable 
byproducts or are considered waste products with little or 
no market value. The most significant of these potential 
byproducts are uranium (in the form of U 3 8 ), recovered 
from phosphoric acid, vanadium (as V 2 O s ), removed from 
ferrophosphorus, and fluorine (F). Gypsum (CaS0 4 .2H 2 0) 
is a waste product from the production of phosphoric acid. 
Few world operations are recovering byproducts from 
phosphate rock. This study considered byproducts only at 
operations in which the recovery of a byproduct significantly 
impacted upon the economics of the entire operation. The 
following is a discussion of each byproduct's present extrac- 
tion process, the potential uses for the byproduct, and the 
constraints presently inhibiting their recovery. 

Uranium is the most important byproduct (or potential 
byproduct) of phosphate. Most phosphate rock contains 
uranium, although not generally in quantities great enough 
for economic extraction. On the average, approximately 1 
mt of 100-pct-P 2 O 5 phosphoric acid will contain 1 lb of 
recoverable U 3 8 (4). 

The process of extracting uranium from phosphoric acid 
is technologically very complex and is not fully comparable 
to the extraction of uranium from other kinds of ores. 
Although some phosphoric acid producers have recovered 
the uranium (particularly in the Southeast United States), 
extensive research is presently under way to make this proc- 
ess more economical. 

Ferrophosphorus is produced as a byproduct in the pro- 
duction of elemental phosphorus. Ferrophosphorus collected 
in the electric furnace contains vanadium as well as other 
metal impurities. It is often sold for the purpose of extract- 
ing vanadium pentoxide. However, the supply of ferro- 
phosphorus is greater than the demand from vanadium 
recovery plants (4). 

The fluorine content in phosphate rock averages be- 
tween 3 and 4 pet. No concentration of fluorine occurs 
during production of phosphoric acid. Some fluorine is re- 
tained in the gypsum waste, some escapes as a gas, and 
some remains in the phosphoric acid. The fluorine gas frac- 
tion that is recovered as fluosilicic acid represents only 
about 35 pet of the fluorine in the phosphate rock prior to 
phosphoric acid production. The principal uses for fluosilicic 
acid are in water fluoridation and the production of cryolite. 
The process of recovering fluorine as fluosilicic acid is 
presently being used by a number of U.S. phosphoric acid 
producers (4). 



Phosphogypsum is a waste byproduct from the wet 
phosphoric acid process. It is precipitated when the 
phosphate rock is digested with sulfuric acid. Gypsum is 
normally stockpiled at the phosphoric acid plant, with a 
small percentage used as fertilizer or as a soil conditioner 
(land plaster). In the United States, phosphogypsum is not 
presently competitive for use in construction material nor 
is it an economical source for sulfur (4). 

There are a number of other byproducts presently or 
potentially recoverable from phosphate deposits. These in- 
clude copper, zircon, precious metals, and vermiculite at the 
Foskor operation in the Republic of South Africa; titanium, 
columbium, rare earths, and vermiculite from Brazilian 
operations; montmorillonite from the Thies Mine in 
Senegal; and columbium from Martison Lake in Canada 
and Sukulu Hills in Uganda. 

Deleterious Materials 

The quality of phosphate rock for phosphoric acid pro- 
duction is affected by the contained amounts of such 
deleterious materials as magnesium oxide (MgO), iron and 
aluminum (as Fe 2 3 and A1 2 3 ), calcium (as CaO), chlorine, 
and others. These impurities can cause problems during the 
production of phosphoric acids and tend to decrease the 
profitability of these operations by increasing costs. 

The magnesium oxide content is undesirable because 
highly viscous magnesium phosphate "sludges" can form 
during the production of phosphoric acids, which can lower 
the operation's productivity and increase the energy re- 
quirements. The magnesium will also precipitate fluorine 
in the reactor stage of the wet-acid process, which causes 
plugging of the gypsum filters (4). As a rule of thumb, a 
magnesium oxide content of approximately 1 pet or higher 
will cause these problems and is typically unacceptable to 
a phosphoric acid plant. 

The iron and aluminum oxide content is also highly 
undesirable because it too forms viscous sludges and makes 
the acids "sticky." If the combined iron and aluminum con- 
tent (also called the I + A content) is greater than 2.5 to 
3 pet, these problems occur and often market penalties are 
added. 

The calcium content of the phosphate rock can affect 
the sulfuric acid requirements of phosphoric acid produc- 
tion. If the CaO-P 2 5 ratio is greater than 1.6, then excessive 
sulfuric acid will be required for the acidulation process. 

Chlorine can cause excessive corrosion in the phosphate 
rock processing equipment. A chlorine content greater than 
0.2 pet is presently considered undesirable. 



49 



Other materials also considered deleterious to the proc- 
essing of phosphate rock include fluorine (because of air 
pollution regulations in the United States), organic matter 
(because greater than 4 to 5 pet C0 2 can cause foaming in 
phosphoric acid production), and trace metals (which also 
can cause the precipitation of sludges in acids). 

NEW MINING AND BENEFICIATION TECHNOLOGY 

The following section briefly discusses several areas of 
phosphate mining and processing research that, if suc- 
cessful, could permit or enhance phosphate recovery from 
known depesits (particularly in the United States) that are 
currently not economic to exploit. These new processes could 
increase the phosphate resource potential and strengthen 
the competitive position of U.S. producers substantially. 

In recent years, the Bureau and various phosphate com- 
panies in Florida have been researching technologies for 
beneficiating or processing phosphate rock from deposits 
containing high amounts of magnesium oxide (MgO). In 
phosphate rock, an MgO content of 1 pet or more causes 
problems in the manufacture of phosphatic acids and is 
therefore unacceptable to phosphoric acid producers. Bureau 
research has established the feasibility of a technique for 
removing a portion of the MgO during beneficiation (23). 
Industry researchers have demonstrated heavy-medium 
separation and flotation techniques for removing MgO dur- 
ing beneficiation (24). If any of these new technologies is 
developed and proven economically feasible, as much as 2 
billion mt of phosphate rock (at the identified resource level) 
in Florida alone could become available. 

Two important mining technologies are also being 
researched in relation to improved phosphate recovery. A 
technique to recover deep phosphate resources through 
borehole mining has recently been developed, although it 
has never been tested on a commercial scale. In addition, 
mining of offshore phosphate resources has potential, 
although it has not as yet been developed into a viable 



economic method. Both of these mining techniques would 
substantially increase phosphate rock recovery and resource 
potential. 



PHOSPHORIC ACID PRODUCTION METHODS 

Most of the phosphate rock produced in the United 
States and the rest of the world is used to manufacture 
fertilizer products (phosphoric acids) to be used by the 
agricultural industry. The various fertilizer products pro- 
duced from phosphate rock are wet-process phosphoric acids, 
normal superphosphates, triple superphosphates, monoam- 
monium phosphates, diammonium phosphates, and direct- 
application ground phosphate rock (phosphate rock that is 
applied directly to acidic soils in many regions of the world). 

The phosphate rock feed for phosphoric acid production 
is usually dried and ground, although wet phosphate rock 
has recently become acceptable to some processing plants, 
particularly in the United States. Calcination of phosphate 
rock is not usually necessary prior to phosphoric acid pro- 
duction and can be a very costly step if required; however, 
calcinated feed produces very high quality phosphoric acid 
(4). 

The most common fertilizer product is phosphoric acid, 
produced by the wet process. The principal reaction involved 
in all wet-process phosphoric acid plants is the digestion 
by sulfuric acid of tricalcium phosphate, the primary con- 
stituent of phosphate ores. This results in the precipitation 
of gypsum and the formation of phosphoric acid in solution. 
Most phosphoric acid processes digest the phosphate rock 
with sulfuric acid, although in Europe there are some proc- 
esses that utilize nitric acid (4). 

Merchant-grade phosphoric acid is one of the most com- 
mon products from a wet-process phosphoric acid plant. It 
has been more prevalent in recent years because it has a 
low content of impurities. Therefore, the phosphoric acid 
can be shipped without large amounts of precipitated solids. 



50 



APPENDIX D.— AVAILABILITY METHODOLOGY 



A total of 206 mines and deposits were evaluated (124 
domestic and 82 foreign). These deposits include resources 
of phosphate rock at the demonstrated level that can be 
mined and milled using current technology. Mines and 
deposits in the U.S.S.R. and China were not included in the 
availability analysis owing to the difficulty of gathering ac- 
curate cost data and converting them to U.S. dollar 
equivalents. 

Typically, beneficiated phosphate rock contains 7 to 20 
pet moisture. Many processes that convert phosphate rock 
into its numerous end products will accept wet phosphate 
rock feed, although less than 3 pet moisture is desirable. 
The final product in the availability study is defined as dry 
phosphate rock. For this study, the term "phosphate rock" 
refers to the beneficiated product, and "phosphate ore" 
refers to the minable material in the ground. 

For purposes of consistency, it was assumed in the 
evaluation that all phosphate rock produced at a mine was 
transported to a local port for export unless that phosphate 
rock was being used for internal domestic consumption. If 
internally consumed, the phosphate rock was transported 
to a nearby phosphoric acid plant or market. Table D-l lists 
the destination points assumed for the availability study. 
Additional costs for further processing of phosphate rock 
into its many end products were not included in the 
availability analysis. Phosphoric acid plant costs and ad- 
ditional transportation costs enter into the solution of the 
network flow model discussed in the "Supply" section and 
appendix E. 

The analysis methodology of the availability study is 
as follows: 

1. The quantity and grade of phosphate ore resources 
were evaluated in relation to physical and technical condi- 
tions that affect production from each deposit as of the base 
date, January 1985. 

2. The capital investments and operating costs for 
appropriate mining, concentrating, and processing methods 
were estimated for each mine or deposit. Company-provided 
data were used when possible, but many of the cost and 
operating parameters were estimated using available infor- 
mation, supplemented by the Bureau's cost estimating 
system (CES) {15V 

3. A cash-flow analysis of each operation determined 
the total cost (or average revenue requirement per metric 
ton of phosphate rock) determined over its entire produc- 
ing life (as determined by estimates of capacity and 
demonstrated resources) and the associated total 
demonstrated tonnage of phosphate rock product that could 
potentially be recovered at specific production levels. 

4. Upon completion of the individual property analyses, 
all properties included in the study were simultaneously 
analyzed and sequentially aggregated onto phosphate rock 
availability curves. These curves are of two types. Total 
availability curves are aggregations of total potential 
phosphate rock that could be produced over the life of each 
operation, ordered from the lowest cost deposits to the 
highest. Annual availability curves are aggregations of 
potential phosphate rock production capacity within a single 
year, also ordered from lowest cost deposits to highest. 
Annual curves reflect current or expected levels of installed 
capacity at each operation. 



1 Italicized numbers in parentheses refer to items in the list of references 
preceding appendix A. 



Table D-1.— Assumed destinations for phosphate rock, 
by country 

Country Market' Location of port or acid plant 

North America: 

Canada IC Port Maitland. 

United States: 

Florida E Tampa or Jacksonville. 

Idaho IC Pocatello or Soda Springs, 

ID; Silverbow, MT. 

Montana IC British Columbia. 

North Carolina E Morehead City, NC. 

Tennessee IC Mt. Pleasant. 

Utah IC Pocatello or Soda Springs, 

ID; Rock Springs, WY. 

Wyoming IC Pocatello or Soda Springs, 

ID. 

Mexico IC Port Belcher or Lazaro 

Cardenas. 
South America: 

Brazil IC Uberaba, Santos, Imbitum- 

ba, Fortaleza, Rio, or 
Recife. 

Colombia IC Pesca. 

Peru E Port Bayovar. 

Venezuela IC Moron. 

North Africa: 

Algeria E Annaba. 

Morocco E Casablanca, Safi, or Jorf 

Lasfar. 

Tunisia E Sfax or Gabes. 

Western Sahara E El Aaiun. 

Other African countries: 

Angola E Lacunga River mouth. 

Senegal E Port Dakar. 

South Africa, Republic of . E Maputo. 

Togo E Port Kpeme. 

Uganda IC Tororo. 

Zimbabwe IC Salisbury. 

Middle East: 

Egypt E Safaga. 

Iraq E Khor-AI-Zuber Port. 

Israel E Port of Ashdad. 

Jordan E Aquab. 

Saudi Arabia IC Hagl. 

Syria E Port Tarfous. 

Turkey IC Elazig. 

Oceania: 

Australia E Port at Gulf of Carpentaria 

or Townsville. 

Christmas Island E Christmas Island. 

Nauru E Nauru. 

Europe: Finland E Leningrad or port in Gulf of 

Finland. 
Asia: 

India IC Udaipur. 

Pakistan IC Failasbad. 

Sri Lanka IC Trincolmolee. 

'E— Export; IC— Internal consumption. 

The availability curves show the costs associated with 
any given level of annual or total potential output; i.e., they 
illustrate the average long-run phosphate rock price that 
each operation would require in order to provide revenues 
sufficient to cover the average total cost of production, in- 
cluding a return on investment high enough to attract new 
capital. The rate of return on investment used in this study 
is a 15-pct discounted-cash-flow rate of return (DCFROR). 

The flow of the Minerals Availabilty Program evalua- 
tion process from deposit identification to analysis of 
availability information is illustrated in figure D-l. 

For the deposits analyzed, tonnage estimates were made 
at the demonstrated resource level based on the mineral 
resource-reserve classification system developed jointly by 
the Bureau and the U.S. Geological Survey (25). The 
demonstrated resource category includes measured plus in- 
dicated tonnages (fig. D-2). 

To be included in the availability analysis, U.S. 
phosphate deposits had to meet technological criteria 
representing currently acceptable U.S. industry standards 
at the time of the analysis. The criteria shown below for 



Identification 

and 

selection 

of deposits 



Tonnage 

and 

grade 

determination 



Engineering 

and 

cost 

evaluation 



Deposit 

report 

preparation 



Mineral 
Industries 
Location 
System 
(MILS) 
data 



MAP 

computer 

data 

base 



MAP 

permanent 

deposit 

files 



Data 
selection 

and 
validation 



Taxes, 
royalties, 

cost 

indexes, 

prices, etc. 



Economic 
analysis 



Data 



Availability 
curves 



Analytical 
reports 



J 



51 



Variable 

and 

parameter 

adjustments 



Sensitivity 
analysis 



Data 



Availability 
curves 



Analytical 
reports 



i_r 



FIGURE D-1. — Flow chart of evaluation procedure. 



Cumulative 
production 



ECONOMIC 



MARGINALLY 
ECONOMIC 



SUBECONOMIC 



IDENTIFIED RESOURCES 


UNDISCOVERED RESOURCES 



Demonstrated 


Inferred 


Probability range 


Measured 


Indicated 


(0 

Hypothetical 


Speculative 




L 




H 


h 



Other 
occurrences 



Includes nonconventional and low-grade materials 



FIGURE D-2. — Mineral resource classification categories. 



52 



the Southeast deposits should be viewed as guidelines 
rather than absolute limits (26). 

1. Deposit size must be more than 5 million mt of 
recoverable phosphate rock, 2 and material must be within 
an average radius of 1.5 miles 3 from center of the ore body. 

2. Deposit size must be more than 10 million mt 2 if the 
average overburden thickness is more than 6 m, and must 
be within an average radius of 2.5 miles 3 of the ore body 
centroid. 

3. Deposit size must be greater than 15 million mt 2 if 
the overburden average thickness is more than 9 m, and 
must be within an average radius of 2.5 miles 3 from the 
center of the ore body. 

4. The flotation feed grade must be more than 4.6 pet 
P 2 5 . 

5. The concentrate grade must be more than 27.5 pet 
P 2 5 . 

6. The phosphate concentration must be at least 1 mt 
of recoverable product per 8 m 3 of ore. 

7. The ore zone must be more than 2 m thick. 

8. Phosphate rock product must contain less than 1.5 
pet MgO. (Resources of high-MgO phosphate are quantified 
in this report and technological developments are discussed, 
but no deposits containing greater than 1 pet MgO were 
evaluated.) 

The following criteria for developing resource estimates 
of Tennessee phosphate deposits represent ranges that the 
central Tennessee phosphate companies recognize as 
representing acceptable minable deposits (27). 

1. A minimum cutoff grade range of 16 to 17.2 pet P 2 5 . 

2. Minimum ore thickness range of 0.6 to 1.2 m. 

3. Maximum overburden-to-ore ratio range of 3:1 to 4:1. 

4. A minimum ore body size of 22,675 mt (dry) of 
phosphate rock. 

The average ore body in Tennessee is small— 150,000 
to 1.2 million mt— which means that deposits at a number 
of separate locations may have to be mined to satisfy one 



company's annual requirement. 

The study criteria for explored deposits in Utah and 
Wyoming include a minimum ore thickness of 0.91 m and 
a minimum average grade of 18 pet P 2 5 . For economic 
classification, minable resources were further subdivided 
by depth, thickness, dip, grade, and probability of occur- 
rence. Resources above adit-entry level 4 were estimated and 
economically evaluated after site-specific corrections were 
applied. The quantity of resources occurring below adit- 
entry level was not costed or economically evaluated in this 
study because of the extremely high recovery cost. 

The foreign deposits included in the analysis had to meet 
the following set of criteria: 

1. Producing properties accounting for at least 85 pet 
of the phosphate rock production from each significant world 
producing country. 

2. Developing and explored deposits where the 
demonstrated phosphate rock reserve-resource quantity was 
equivalent to at least the lower limits of the reserve-resource 
quantity of the producing deposits. 

3. Past-producing deposits where the remaining 
demonstrated phosphate rock reserve-resource quantity was 
equivalent to at least the lower limits of the reserve-resource 
quantity of the producing deposits. 

Evaluation of each phosphate property included deter- 
mining phosphate resources, deposit development, 
technologies, and costs. Information on the average grades, 
ore tonnages, and different physical characteristics affecting 
production from domestic phosphate deposits was obtained 
from numerous sources, including Bureau and Geological 
Survey publications, professional journals, State and in- 
dustry publications, annual reports, company 10K reports 
and prospectuses filed with the Securities and Exchange 
Commission, data made available to the Bureau by private 
companies (domestic and foreign) or via contract, and 
estimates made by Bureau personnel based on personal 
knowledge and judgments. 



2 Exceptions— if the deposit is adjacent to larger identified deposits or is 
in hardrock areas. 

3 This radius equates to the resource ore body covering one-half of the area 
of the deposit, at an average of 2,500 mt per acre. 



" The adit-entry level is defined as the nearly horizontal access to the 
minable resource. The adit level also serves as a conduit for natural mine 
water drainage. 



53 



APPENDIX E.— SUPPLY MODELING METHODOLOGIES 



This section describes how the data collected for the 
availability study has been incorporated into two forms of 
world mineral market models. The two model forms con- 
structed are referred to as the "market balance" and "net- 
work flow" models. They are complementary in their 
capabilities, but each has characteristics that are unique 
and its own subset of required data items. For the most part, 
they utilize a common deposit data base and, as much as 
possible, a common software set. 

The modeling tools that have been developed answer 
different types of policy analysis questions and service dif- 
ferent levels of users. The form of the market balance model 
is a combination of systems dynamics and econometrics. An 
engineering-based, deposit-specific supply side has been 
substituted for the usual econometric approach that extrapo- 
lates from past information. The network flow model form 
takes additional advantage of the extensive deposit data 
base with a unique optimization methodology. 

These two distinct tools for analysis can be used in- 
dependently. The market balance approach is well suited 
to relatively quick turnaround analysis and can be con- 
structed with a less extensive data base than is required 
for the network flow approach. The market balance model 
offers a dynamic solution capability (i.e., it solves for a user- 
defined series of years) and is best suited to addressing 
intermediate to long-term issues. The network flow model 
solves for a single year at a time and is more suited to 
analysis of short-term issues. It can provide enormous in- 
sight into the competitive structure of the market. 

A wide range of scenarios can be defined with the cur- 
rent versions of the two forms of phosphate models. For 
example, the relative competitive positions of alternative 
future supply sources can be examined. The impacts of 
various tax, tariff, and subsidy issues can be considered. 
Capital expenditure issues and property development deci- 
sions can be assessed. Disruption analyses can be defined 
on a property or regional basis. Effects of alternative de- 
mand levels can be examined. Effects of changing input 
costs or changes in market structures can be examined. 

The modeling tools offer an analyst access to the deposit 
data base and place a supply-side representation built from 
that data base within a world market context. The follow- 
ing sections provide documentation of the market balance 
model and the network flow model. 

MARKET BALANCE 

General Description 

The market balance model is an engineering-based 
model that fits the system-simulation or systems-dynamics 
category of mineral market models and also includes attri- 
butes of an econometric model. A system-simulation model 
typically interconnects submodels, each of which captures 
generally accepted behavior on a small scale, in an attempt 
to simulate overall performance on a large scale (18). 1 

The submodels that comprise the market balance model 
framework include all the elements of a standard market- 
simulation model combined in a logically correct represen- 
tation of the market. These include supply, demand, and 
price determination, as well as an iterative balancing pro- 



1 Italicized numbers in parentheses refer to items in the list of references 
preceding appendix A. 



cedure for finding an equilibrium solution. The market 
balance model also provides the user with default values 
for all the data in the projection period and provides a com- 
plete set of definitional or statistically derived behavioral 
relationships that tie the pieces together. The assumptions 
and simplifications necessary to construct a working 
phosphate model tend to define the scope of analysis that 
can be performed. As a result, a thorough understanding 
of the entire model form is necessary for interpreting results 
and defining reasonable scenarios for analysis. 

The overall design of the market balance model requires 
that the estimated amounts of P 2 5 consumed in fertilizer 
and nonfertilizer products be equal to the estimated amount 
supplied to the market at equilibrium. The method for 
reaching balance is an iterative process that finds a single 
world price at which the amount supplied and the amount 
demanded are in balance. Lower prices cause fertilizer de- 
mand estimates to increase while higher prices lead to 
decreases in demand. Supply responds to price in the op- 
posite manner. More deposits produce at a higher price 
(because more are able to cover their average variable costs), 
and deposits that are already producing will produce more 
according to a capacity-utilization equation described later 
in this section, if they are not already producing at max- 
imum capacity. (The model assumes normally sloped supply 
and demand curves.) 

Figure E-l shows the phosphate supply-demand model 
prototype. Solution of supply is a function of deposit and 
market information coupled with decision rules and takes 
into account all constraints known to a user and entered 
into the data base. Solution of demand likewise uses an 
information set and decision rules and can incorporate user 
constraints. The balance achieved accounts for product 
definitions and processing and handling losses. 

The software system for using the market balance model 
is flexible enough to allow users a wide choice of submodels. 
Demand can be solved with a set of econometric equations 
for eight world regions, or it can be determined exogenously. 
Supply can be solved using a choice of behavioral assump- 
tions to define the logic of the supply-side response to price 
and other market conditions. 

Supply from MEC deposits is solved a single year at a 
time, with the assumption that a competitive world market 
exists for phosphate rock. That is, all P 2 5 in phosphate rock 
is presumed to be of equivalent quality (homogeneous pro- 
duct), there are many sellers of the product, and each firm 
perceives a fixed world market price that cannot be affected 
by its production decision. Individual deposit cost functions 
define the quantity of inputs necessary to produce different 
levels of output. Optimizing behavior by the firm is to select 
that level of output at which profits (the difference between 
revenues and costs) are maximized. Figure E-2 shows curves 
for average variable costs (AVC), marginal costs (MC), and 
a hypothetical market price (P ) to illustrate this concept. 
The optimum output (Q ) is shown as the intersection of a 
horizontal line drawn at the level of the market price (P ) 
and the rising portion of the firm's MC curve, i.e., the point 
where marginal cost equals marginal revenue. 

The minimum "point" on the average variable cost 
curve in figure E-2 is shown as a flat segment, indicating 
a wide range of possible output over which the per-unit 
variable cost of phosphate production is the same. This is 
so because production at levels below rated annual capacity 



54 



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° p 

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QUANTITY 



FIGURE E-2 
curves. 



— Truncated marginal and average variable cost 



generally means shutting down the operation at regular 
intervals or for a portion of the year. For example, Florida 
operations can work a 5-day week or a 7-day week at the 
same average variable cost level. The cost of opening or clos- 
ing facilities is small, and maintenance costs during a 
temporary shutdown are likewise small relative to the 
average variable cost of production. Many western U.S. 
properties are not operated during the winter months, and 
the level of annual output is adjusted by the choice of dates 
for beginning production in the spring and stopping pro- 
duction in the fall; average variable costs are the same over 
a wide range of output levels. The upper end of the curve 
is shown as a near-vertical line, indicating that installed 
capacity represents an upper limit on total output. Addi- 
tional output is not forthcoming (in the short term) even 
if an operator is willing to pay much higher costs. 

The implication in the market balance model of this 
form of deposit supply curve is that a property will either 
operate at capacity when price is at or above the intersec- 
tion of AVC and MC, or it will shut down if price is below 
the minimum of AVC. This curve is referred to as the 
"definitional" deposit supply curve. Other options available 
to a model user are to prespecify production levels or to use 
a capacity-utilization equation described in a later part of 
this section. The network flow model, described later in this 
appendix, uses the definitional supply-curve representation, 
but the existence of multiple markets and the optimization 
procedure lead to production levels that are below full 
capacity at many deposits. 

Historical production data for U.S. phosphate mines are 
not entirely consistent with the definitional deposit supply 
curve. Annual output from different properties tends to rise 
and fall somewhat in concert with annual average price 
cycles. The maximum output for most properties has been 
above rated capacity in one or more recent years. A capacity 
utilization equation that allows for this pattern of observed 
production behavior was estimated and incorporated into 
the market balance model structure as a user option. 
Results from simulations using this form of supply deter- 
mination are shown later in this section. These results differ 
only marginally from results using the definitional supply 
curve, but the capability to use either form was included 
in the model for completeness. 

Figure E-3 shows a typical supply curve for a single 
year, as generated by the market balance model. The supply 
curve in each year is a step function, with the horizontal 
axis equal to cumulative annual production and the verti- 
cal axis equal to price or the average variable production 



cost. Each step on the curve corresponds to an individual 
deposit. The representation shown assumes that parameters 
have been set to simulate the definitional form of the deposit 
supply curve previously discussed. (A supply curve based 
upon the capacity-utilization equation is discussed later in 
this section.) 




14 28 42 56 

CUMULATIVE ANNUAL PRODUCTION CAPACITY, I0 6 mt P 2 5 

FIGURE E-3. — Typical market balance model MEC supply 
curve. 



Definitions and Assumptions 

The definitions and assumptions behind the curves 
shown in figures E-2 and E-3 are given below. Units of 
measure are defined, as is the manner in which different 
variables are calculated for inclusion in the market balance 
model. Further explanation of how the model variables 
relate to each other comprises the remainder of this section. 

Unit of measure for quantities supplied or demanded is 
in terms of recoverable units of P 2 5 in phosphate rock. 
Simulated values for market price are in terms of constant 
January 1985 U.S. dollars per unit of recovered P 2 5 in 
phosphate rock. Cost measures internal to the market 
balance model are also January 1985 U.S. dollars, but are 
applied against the appropriate quantity units for the stage 
of processing. 

Capacity at each MEC deposit is in thousand metric tons 
of material treated per year. It presumes a normal amount 
of downtime for routine maintenance and repairs, but 
generally the maximum possible number of shifts and work- 
ing days are built into the estimate. Planned expansions 
that are judged to have a high probability of occurring are 
built into the data for the years those expansions are ex- 
pected to take place. 

Rate of capacity utilization for each deposit is the pro- 
portion of available production capacity utilized in the cur- 
rent year. The utilization factor is determined automatically 
as a statistically estimated function of costs and a weighted 
average of current and past prices. Parameters of this func- 
tion can be set to values that simulate the definitional 
deposit supply curve. 

Capital costs estimated for each deposit in each year 
were reported in detail in the "Capital Costs" section under 
"Methodologies." Each capital cost entry is an annual ex- 
penditure with a prespecified depreciation schedule. Capital 
costs are used in the calculation of the DCFROR incentive 
price, which in turn is used by the model to determine the 
order in which deposits are developed. They are not part 
of the variable costs used to make short-term production 



56 



decisions. Expenditure items such as land acquisition are 
treated analogously to capital costs. 

Operating costs for each deposit in each year are disag- 
gregated into major components; each cost category can be 
adjusted separately by the model user, or the entire mine 
or mill operating cost can be altered. Mine operating costs 
are applied against material extracted. Mill operating costs 
are applied against material entering the milling process 
(same as units extracted in mining process). All operating 
costs are recomputed in terms of dollars per unit of 
recovered P 2 5 in phosphate rock before they are used in 
the capacity-utilization equation on the supply side of the 
model. The components of mine and mill operating costs 
for phosphates are- 
Supervisory labor, 
Skilled labor, 
Unskilled labor, 
Electrical power, 
Fuel (gas, diesel, etc.), 
Supplies (nonenergy), 
Equipment repair parts, 
Administration and general overhead. 

Transportation costs for each deposit in each year in- 
clude charges for moving material to a port or regional 
marketing center or to a phosphoric acid plant for further 
processing. 

Severance tax payment levels are determined during 
simulation and depend on a method of calculation ap- 
propriate to each country or State. Payment levels can be 
a function of the number of units produced or can take ac- 
count of the selling price for the material. Some foreign 
properties are built with an assumed fixed payment for 
severance taxes if the method of calculation cannot be ap- 
proximated by any of the options available. 

Royalty payment levels are also determined during 
simulation. Payment levels can be made a function of the 
number of units produced, can take account of the selling 
price for the material in determining payment levels, or can 
assume a fixed payment for royalties if the method of 
calculation cannot be approximated by any of the options 
available. 

Average variable cost for a deposit is the avoidable cost 
per unit of production; i.e., it is the combination of expendi- 
ture items that can be avoided if the operation is not 
operating. The average variable cost measure is equivalent 
to marginal cost over a wide output range, as shown earlier 
in figure E-2. It is, therefore, the relevant short-term cost 
measure for determining whether or not a deposit will pro- 
duce under current market conditions, and if producing, the 
production level. Average variable cost levels for each year 
for each deposit are currently defined as the sum of per-unit 
mine operating cost, mill operating cost, transportation cost 
to a port or processing plant, and those royalty payments 
and severance taxes that are calculated as a function of the 
amount or value of material produced. The definition of 
variable cost used in the phosphate model is 

VCj = mineop| + millop| + trans* + royj" + sev* 

where VCj = average variable cost at deposit i in 
period t, in January 1985 constant U.S. 
dollars; 

mineopj = mine operating costs at deposit i in period 
t, the summation of the eight mine cost 
components previously described; 



millopj = mill operating costs at deposit i in period 
t, the summation of the eight cost 
components; 

transi = transportation cost for moving material 
from deposit i in period t; all material 
from MEC deposits is transported to 
either a transshipment point such as a 
port or a further processing point such as 
a phosphoric acid plant; 

royj = royalty payments on production or 
revenues from deposit i in period t; only 
those royalty methods that apply a 
charge against current production levels 
are considered part of variable cost; 

and sevj = severance tax payments on production or 

revenues from deposit i in period t; only 
those severance tax methods that apply 
a charge against current production 
levels are considered part of variable cost. 

Market price (as determined in the model) is an annual 
average U.S. price per unit of P 2 5 in phosphate rock. Two 
other prices are calculated from the U.S. price. These are 
the Casablanca price of P 2 5 in phosphate rock (which is 
used to determine production levels for foreign deposits) and 
the U.S. gulf price of superphosphate (which is used in the 
demand equations). Each of these companion prices is set 
equal to a multiple of the U.S. phosphate rock price, with 
the multiple equal to the average price differential for the 
1964-84 period. Current factors defining the price (P) rela- 
tionships are 



P =14 

Casablanca 



USrock 



P* = 2 • P* 

superphos USrock' 

Minimum price required for a deposit to produce is equal 
to that deposit's average variable (i.e., marginal) cost level. 
Those developed deposits that cannot cover their variable 
costs at the market price are presumed to be shut down 
unless other information indicates that the property would 
continue to operate because of nonmarket considerations. 
All U.S. deposits are presumed to face the U.S. price, and 
all foreign deposits are presumed to face the Casablanca 
price. 

Inventories are held at a constant level throughout the 
projection period. The user can add to or subtract from cur- 
rent levels by entering the desired inventory change as an 
exogenous source of supply. 

Processing and handling losses in the production and 
transportation of final products are accounted for with a 
multiplicative factor on total supply. Even though the pro- 
cessing of phosphate into various fertilizer products is not 
explicitly represented in the market balance model, the 
physical losses incurred in those processes must be 
accounted for when computing the required supply. The 
factor is applied at the point in the iterative procedure 
where total demand and total supply are balanced. Between 
6 and 11 pet of the P 2 5 content is lost in the manufacture 
of phosphoric acid, depending on the technology used. An 
additional 2 to 5 pet of P 2 5 can be lost in the production 
of various forms of fertilizers. Available data for recent 
years suggest an average 13.1 pet of phosphate rock is lost 
in processing or handling, and that is the value used in the 



57 



model simulation. Recoveries for mining and milling are 
accounted for separately by factors unique to each deposit. 

Supply Determination 

Total production (the solution of the supply side) in the 
market balance model is a summation of simulated produc- 
tion from each of the MEC deposits, plus production from 
CPEC deposits, plus production from small U.S. and foreign 
deposits not included in the MEC supply model data base. 

Production from MEC deposits is calculated within the 
model for each year of the simulation as a function of 
deposit-specific costs and the current and previous period 
market prices. Price is also estimated each year as part of 
the model solution. 

Production decisions are based on the individual 
desposit supply curves discussed earlier. Using these curves, 
the program selects an output level for each producer where 
marginal cost is equal to market price (i.e., the competitive 
market level). Using the definitional supply curve described 
earlier means a choice between full-capacity production and 
shutdown for each operation. 

The average variable cost curves for domestic phosphate 
properties are truncated U-shaped curves. That is, there is 
a wide range of possible output levels at each operation 
where the marginal cost per unit of output is effectively the 
same (fig. E-2). Capacity represents a physical constraint 
on output. A willingness to spend more money will not over- 
come this in the short run (i.e., the deposit supply curve is 
nearly vertical at capacity). Therefore, the definitional 
supply curve developed from the estimates of costs at 
various output levels in a simple form for individual 
deposits, and the corresponding industry supply curve is a 
step function (fig. E-3). 

The production history of domestic phosphate rock 
mines clearly shows, however, that most operations vary 
annual output levels in response to market conditions, and 
it was decided to supplement the definitional approach to 
deriving supply curves with an econometric approach. The 
econometric equation determines a capacity utilization rate 
as a function of deposit-specific costs, market price, and in- 
ventories. The form of that relationship in the simulation 
model is as follows: 

CAPUT* = al + a2 • (P* + P t_1 )/VCj + a3 • I^/I* 



and 



normal level of U.S. inventories 
calculated as a constant proportion of 
previous period's production level. 



t^r.t 



CAPUTS 



if VCi<P\ 



if VC* > P\ 

where CAPUT; = capacity utilization rate for deposit i 
in period t; 
al, a2, a3 = statistically estimated parameters 
that can be set to unique values for 
each supply region; 

VCj = average variable cost for deposit i in 
period t; 

P = simulated U.S. price for P 2 5 in 
phosphate rock in period t; 

P = previous period's value of P ; 

I us = beginning of period t level of U.S. 
inventories; 



The equation was estimated with inventory as an ex- 
planatory variable, but inventories do not appear in the 
simulation equation. The market balance model simulations 
done for this study presume inventory change each year to 
be zero, and the parameter on inventories is subsumed into 
the constant term of the equation. 

Note that the CAPUT; equation reproduces the "defini- 
tional" supply curve with a proper choice of parameters. 
Setting al equal to 1.0 and a2 and a3 equal to 0.0 causes 
the industry supply curve to be that shown in figure E-3. 
Using the CAPUT; equation and an appropriate choice of 
the parameters al, a2, and a3, a simulation value for pro- 
duction is derived as follows: 

1. An initial guess at an equilibrium value for the U.S. 
market price is made automatically by the simulation 
algorithm. Generally this will be the solution value from 
the previous time period. An iterative procedure is used to 
refine the estimate of this period's equilibrium price. The 
last step in the iteration process is to check to see if 
equilibrium on price, supply, and demand has been 
achieved, and if not, to send the computer program back 
to this step with an adjustment of price for the next itera- 
tion. If equilibrium has been found, the program moves to 
step 2. 

2. Production from each of the developed U.S. deposits 
is predicted. This is done by solving the CAPUTS equation 
shown previously, with P set equal to the value in the cur- 
rent iteration. Multiplying CAPUT; times capacity; yields 
a simulated value for production in that year for property ; . 

3. A value for the Casablanca price of P 2 5 in phosphate 
rock is derived as a multiple of the U.S. price. An average 
multiple of 1.4 was calculated from data for the 1964-83 
period, and this value has been incorporated into the market 
balance model. 

4. Production levels for all foreign MEC deposits are 
calculated in the same fashion as for the U.S. deposits, by 
solving the CAPUT; equation and multiplying times 
capacity;. 

5. Total production from U.S. and foreign MEC deposits 
is the summation of all production values derived above. 

6. Production from CPEC's and from small deposits in 
the United States and other MEC's are added to get total 
world production of P 2 5 in phosphate rock. Total supply 
in the market balance model is derived through the set of 
equations of the following general form: 

prod| = « P rock> V 4 CAPj), 
prod| < F c * CAPj, 

P rod MEC = 2> rod i> 

P rod total = P rod MEC + P rod U.S.S.R. + P rod China 
+ P rod Korea + P rod Vietnam + P ro( 4her 

where prod; = simulated production from deposit i 

in period t; 

prod MEC = total production from all 206 MEC 
deposits in period t; 



58 



and 



prody s s R = production from U.S.S.R. in period t 
(exogenous); 

prod China = production from China in period t 
(exogenous); 

prod Korea = production from North Korea in 
period t (exogenous); 

prody ietnam = production from Vietnam in period t 
(exogenous); 

prod other = production from small MEC deposits 
in period t (exogenous); 

prod total = total production of P 2 5 in phosphate 
rock in period t; 

P rock = price of phosphate rock in period t, in 
constant January 1985 U.S. dollars 
(there are two rock prices in the 
model; non-U.S. deposits face the 
Casablanca price for rock, calculated 
as a multiple of the U.S. price); 

VCj = average variable costs at deposit i in 
period t, in constant January 1985 
U.S. dollars; 

CAPj = production capacity at deposit i in 
period t; 

F c = user-defined maximum capacity 
utilization rate. 



Recycling is not relevant in the phosphate market, as 
phosphate rock is completely used up in application. How- 
ever, the simulation model has been designed in a general 
fashion that will allow (in other mineral models to be built 
in the future) for an increment to supply from recycled and 
byproduct material. 

Demand Determination 

The demand side of the model is comprised of eight 
regional demands for fertilizer and two nonfertilizer 
markets. Econometric equations (9) have been derived for 
fertilizer demand, which is by far the largest portion (85 
to 90 pet) of phosphate consumption (end use), while nonfer- 
tilizer demand is predeterimined by the user. 

Consumption of P 2 5 in fertilizer in the market balance 
model is the summation of solution values from statistically 
derived demand equations for the eight regions: United 
States, Canada, Central and South America, Africa, Asia 
and Oceania, Western Europe, Eastern Europe, and 
U.S.S.R. Each regional equation is of the form: 



CWtP 1 , C t_1 , RFFR 1 , API 1 , pop*, WPI 1 , D 1974 ), 

r superphos r r r 

where C* = consumption of P 2 5 in fertilizer in 

r region r in period t; 

nt-i = consumption of P 2 5 in fertilizer in 
r region r in previous period; 



and 



P* = U.S. gulf price of superphosphate 

superphos ^ period t (currently 

set as 2.0'P* ); 

US rock 

RFFR* = U.S. short-term Federal funds rate 
in period t; 

API = agricultural production index for 
r region r in period t; 

pop 1 = population in region r in period t; 

r 

WPI 1 = U.S. wholesale price index for food 
in period t; 

D 1974 = dummy variable for energy crisis. 



The value for superphosphate price is computed as part 
of the yearly simulation. Values for all other explanatory 
variables are predetermined. The previous period's levels 
of regional consumption are part of the dynamic solution 
of the model. Projection period values for the exogenous data 
were calculated as time trends based on the historical data 
from 1964 to the present. Those variables that show no 
discernable trend, such as the U.S. short-term Federal funds 
rate, had forecast values set at their average values over 
the period. 

The user can override the fertilizer consumption 
estimates from the equations by providing his/her own 
estimates of demand in future years. These user-provided 
demand numbers can be entered into the market balance 
model data base as a world total, in which case all regional 
demand equations are ignored, or the user can provide de- 
mand for only selected regions, in which case the remain- 
ing regions will have their demand levels estimated using 
the appropriate equations. 

The nonfertilizer uses for phosphate are divided into two 
categories: mineral supplements for animal feed (4 to 5 pet 
of world phoshate rock demand) and industrial uses (6 to 
7 pet of phosphate demand). Demand for P 2 5 in animal feed 
supplements and industrial uses is added to the regional 
estimates of fertilizer demand to get total world demand 
for P 2 5 . 

An assumption that demand for P 2 5 in feed supple- 
ments will increase at 2.5 pct/yr was incorporated into the 
model. This assumption is based on potential market growth 
on a region-by-region level. The market for animal feed 
supplements is well established, perhaps even near satura- 
tion levels, in North America, Western Europe, and a hand- 
ful of other developed countries, and only a low growth 
potential in this end use was seen for those regions. The 
U.S.S.R., Eastern Europe, and developing countries were 
seen as having far more growth potential. 

About 70 pet of phosphate consumption in the industrial 
use category is as detergent builders and cleaners, and for 
water treatment. The forecast annual average growth for 
this end use of 3.5 pet was used in the market balance 
model. This growth rate is a continuation of the recent trend 
and assumes no further major move against phosphate in 
detergent after 1985. 

Dynamic Model Solution 

The method for converging to a price where supply and 
demand are in balance is a modified Newton-Raphson 
approximation technique (28). The technique first 



59 



establishes a lower bound and an upper bound for price. Suc- 
cessive iterations use estimated prices that are 
mathematically proven to narrow the difference between 
the lowest upper bound and the highest lower bound until 
convergence occurs. 

The model uses year-specific values for many of the 
variables describing each deposit. All costs, feed grades, 
recoveries, and capacity numbers are year specific, for 
example. Values for these variables are reset automatically 
each time period as the model begins the iterative procedure 
to solve for an equilibrium supply, demand, and price in 
that year. 

Resource depletion is accounted for each year as 
simulated production levels for each deposit are subtracted 
from the remaining resource estimate. When a deposit is 
completely depleted, it is no longer able to produce. 

Undeveloped deposits are brought on-line in a timely 
fashion to maintain sufficient production capacity in future 
years. Each nonproducer deposit file data base is con- 
structed so that the time necessary to develop that deposit 
is specified as a necessary preproduction development 
period. The method for determining when each nonproducer 
should begin the development process is a look-ahead func- 
tion that computes an expected capacity-demand balance 
to see if a market niche exists for product from a new supply 
source. 

The look-ahead function works in the following fashion. 
The number of necessary development years (N) is part of 
the property definition developed as part of the normal 
availability analysis. The look-ahead function makes an 
estimate of total future production capacity (in the year 
N + current) by adding up the capacities of all currently 
developed deposits that have sufficient reserves to carry 
them through to that year. It compares that estimate to an 
estimate of future demand calculated as a trend growth 
from current levels. If there is insufficient production capac- 
ity in year n, as measured by a user-determined critical 
value for the expected future capacity-demand ratio, then 
those deposits with the lowest total costs (as measured by 
the results from a 0-pct DCFROR analysis) are triggered 
to begin the development process. Properties are triggered 
in this lowest cost order until the appropriate balance of 
future capacity and future demand is established for year 
N + current. Those properties that are not triggered to 
develop are carried over into the same calculation for year 
N + 1 + current. For each year of the simulation the same 
set of calculations is made, establishing a pattern of prop- 
erty development that can maintain a supply-demand 
balance for all future years. 

No reference is made to possible future price levels in 
the look-ahead function, and there is no guarantee that the 
incentives would exist that would lead property owners to 
develop in this manner. However, the balance model will 
report the cost levels associated with required new capacity, 
and those cost levels will be useful information in assessing 
likely future market conditions. Any development decision 
would, of course, depend on a company's assessment of the 
likelihood of capacity expansions by others and their total 
effect on the future balance of supply and demand. 

Total Supply Definition 

The major portion of potential supply is from deposits 
in MEC's. The market balance model determines production 
from each MEC deposit each period as a function of price, 
cost, and the associated capacity level. 



The second component of supply is production from 
deposits in CPEC's: U.S.S.R., North Korea, Vietnam, and 
China. The projected supply from all CPEC deposits is 
derived outside the model and entered as a single value. 
The forecast of future phosphate rock production capacity 
for each of these countries is from an April 1985 study done 
by the British Sulfur Corp. for the Bureau of Mines (2). 
These forecasts were adjusted for average P 2 5 content and 
checked for reasonableness by comparison with recent 
production trends. The deposit data base includes some in- 
formation on deposits in these countries, but cost data are 
incomplete and non-MEC deposit cost evaluations are not 
performed. In any case, production decisions for CPEC 
deposits cannot be assumed to be based on the competitive 
model. The user can easily override the existing (default) 
values and substitute his/her own estimates of future 
production from CPEC deposits. 

A third component of supply is production from small 
deposits in the United States that are not included sepa- 
rately in the model. These are largely elemental phosphate 
producers, and projected production levels are based on 
reported production levels in past years and on current and 
planned capacity levels. These deposits are excluded from 
the simulation model because they do not compete in the 
fertilizer market and do not respond directly to the price 
faced by phosphate rock producers who are supplying that 
market. 

The final source of phosphate supply (also determined 
exogenously) is production from small deposits in foreign 
countries. This projection represents a continuation of pro- 
duction trends reported in the Bureau's Minerals Year- 
books. Production from these MEC sources has been 
substantially less than 1 pet of total world production in 
all recent years. 

Several pieces of deposit-specific information are in- 
cluded in the revised deposit data set that feeds the market 
balance model. Many of these variables provide the user 
with the ability to impose a production level or development 
schedule on specific deposits about which he/she has infor- 
mation, for example, information on long-term contracts to 
supply material at agreed-upon levels (as reported in the 
literature for several companies). Occidental Chemical Co., 
which owns and operates the Suwannee River and Swift 
Creek operations in Florida, has an agreement to supply 
the U.S.S.R. with phosphate each year in exchange for 
ammonia. A second example relates to the Watson Mine 
(also in Florida), which is partially owned by a Japanese 
agricultural cooperative and appears to be providing a 
guaranteed amount of material to be exported to Japan. In 
both these instances, the contracted-for level of production 
is entered into the market balance model deposit data set 
as a minimum production level each year. 

Minimum production levels may also be set for other 
reasons, such as the policy of government-owned operations 
to produce regardless of cost. Government-owned Brazilian 
operations, with a public stance of striving for self- 
sufficiency in fertilizers, are in this category. 

If there is information that a particular (nonproducing) 
deposit will be a replacement property for a current pro- 
ducer when it depletes, this can be specified by the user. 
A property designated as a replacement candidate will not 
be allowed to begin production until the property it replaces 
has depleted. 

For some deposits, the quality of the phosphate rock 
product may be such that it commands a premium over the 
current market price, or the product may be penalized 



60 



because of low quality or deleterious material. A 
multiplicative "price adjustment factor" for quality of the 
product allows a user to specify that a particular deposit 
faces a higher or lower market price than the standard solv- 
ed for in the simulation 



Output From the Market Balance Model 

The principal outputs from a market balance model run 
include annual solution values for world demand, world 
supply, and the equilibrium phosphate rock price. 

The total world demand value is consumption of thou- 
sand metric tons of P 2 5 contained in fertilizer and nonfer- 
tilizer products, for all regions combined. Fertilizer demand 
can be reported separately for each of the eight regions. Con- 
sumption estimates for the two nonfertilizer uses are each 
single-value world totals. Total demand is defined as follows: 



D 



total 



D. . + 

fert-reg 



ind afs, 



where 



D. . , = total world consumption of P 2 5 in all 
uses; 



D 



fert-reg 



D 



ind 



and 



D 



afs 



= the sum of consumption of P 2 5 in fer- 
tilizer in the United States, Canada, 
Central and South America, Africa, 
Oceania and Asia, Western Europe, 
Eastern Europe, U.S.S.R.; 

consumption of P 2 5 in industrial 
uses; 

consumption of P 2 5 in animal feed 
supplements. 



The supply value is thousand metric tons of P 2 5 con- 
tained in phosphate rock produced at all deposits combined. 
It is larger than demand by a constant factor that represents 
processing and handling losses. Total supply is defined as 
follows: 

S total = S MEC + S USSR + S China + Korea + ^Vietnam + other, 

where S MEC = total production from 206 MEC 
deposits; 



USSR' S China' S Korea' S Vietnam 



= CPEC production; 



and 



S Qther = production from small deposits in 

MEC's not included in the simulation 
data base. 



Supply estimates can be reported on a regional basis. 
Each regional total is a summation of production from all 
the producing deposits in that region. If production levels 
for any deposits are set by the user, those values are added 
into the regional and world totals just as if the model had 
solved for the production level. The set of regions reported 
automatically currently includes Western United States, 
Florida, total United States, Morocco, Jordan, Israel, 
Tunisia, other MEC's, CPEC's and total supply. 

The price value in the summary table is approximately 
equal to the average variable costs at the producing prop- 
erty with the highest cost level. (The price will be less than 
the level that would cause the next highest cost property 



to begin production.) As such, it represents a minimum price 
that would likely prevail in the market. This reflects the 
usual assumption in a competitive market that facilities 
will produce up to the point where marginal revenue is 
equal to marginal cost. Properties that cannot sell their out- 
put at a price at least as high as their variable costs will 
shut down unless other factors come into play. 

The price report includes values for all three prices used 
by the model. The U.S. price is in 1985 dollars per unit of 
P 2 5 in phosphate rock. The world price used for foreign 
deposits is a translation of that value to represent the 
Casablanca price of P 2 5 in phosphate rock. The demand 
price is the estimated U.S. gulf price per unit of P 2 5 in tri- 
ple superphosphate and is used in the regional demand 
equations. 

The model's computer output also includes a reporting 
of all major adjustments to status on a property -by -property 
basis. Those changes include the triggering of a develop- 
ment decision for a nonproducer (i.e., the beginning of a 
countdown for the necessary number of preproduction 
years), the temporary shutdown of high-cost producing prop- 
erties, the starting up of a new property, and the shutdown 
of properties because of resource depletion. 



NETWORK FLOW 
Introduction 

One objective of the ongoing supply-demand project has 
been to develop a prototype mineral-supply model that 
draws upon the available wealth of deposit-specific data. 
A technique was required that could perform two tasks: (1) 
determine the optimal mix of production levels, by property, 
in a given economic climate and (2) determine optimal trade 
flow patterns on a region-by-region basis. An optimization 
model was deemed appropriate. It would utilize numerical 
techniques that permit the systematic screening of large 
numbers of alternative production levels and select those 
superior to others based upon a selection criterion. The 
selection criterion chosen was cost minimization. 

The most common form of such mathematical models 
is linear programming (LP), mathematical problems 
characterized by linearity in both the objective function and 
the constraints. Since all LP-type problems are distin- 
guished by the existence of various activities that compete 
for scarce resources, the goal is to determine the most effi- 
cient allocation of those scarce resources among competing 
activities. The objective of LP is to determine the level of 
each activity such that a linear criterion (objective function) 
is optimized subject to resource constraints. 

While LP models are ubiquitous, they have certain 
drawbacks. The solution algorithms run fairly slowly on 
large problems. More important for this application, the 
design and objective of the model are virtually impossible 
to graph and difficult to summarize and interpret. For these 
reasons, the modeling method chosen was network flow pro- 
gramming, an optimization technique derived from LP. 
Thoroughly general networks, when matched with transpor- 
tation algorithms, fulfill both of the previously mentioned 
requirements: (1) the optimal cost-minimization solution 
determines production levels by property necessary to fulfill 
a given demand level and (2) a feasible, optimal set of in- 
ternational trade flows are ascertained via the transporta- 
tion algorithm. Generalized networks also overcome certain 
inherent failings in pure LP models: (1) the solution 



61 



algorithm can run up to 300 times faster than LP codes for 
similarly sized problems and (2) the model can be displayed 
graphically for expositional clarity (19). 

An introduction to the economic rationale of the model, 
numerical techniques used, and applications are provided 
in the following sections. However, it is worthwhile, at this 
point, to mention the main features of the method and ad- 
dress the limitations. 

General Description 

The phosphate network flow model is based on the prin- 
ciple of technical economic efficiency: fulfill specified market 
requirements (demand) with the minimum use of resources, 
i.e., at the lowest opportunity cost. Demand in the model 
is either calculated automatically from an internal set of 
demand equations or set directly by the user. The supply 
side of the model is based on the interrelationships between 
the mining, milling, and acidulation facilities of phosphate- 
producing companies worldwide. Potential material flow or 
material processing is represented by arcs. Arcs connect 
nodes, which are aassigned to actual or hypothetical loca- 
tions. Arcs are constrained by upper bounds and lower 
bounds; each arc has an associated cost. The upper bound 
is set at the maximum possible flow. The lower bound is 
set at the minimum required flow. Cost is set equal to the 
minimum of the average variable (marginal) costs of the 
activity that the arc represents. Oligopolistic, vertically in- 
tegrated mineral market characteristics are incorporated 
into the model via these constraints and the intrinsic net- 
work design. 

Mathematically, the model can be stated in vector nota- 
tion as 



subject to 



Min cf, 

Gf = b 
0<f<u, 



where c = vector of marginal costs; 

f = vector of flows; 

G = node-arc incidence matrix (constraint 
coefficient matrix); 

u = vector of upper bound constraints; 

and b = vector of node requirements (right- 

hand side, predetermined demand). 

The network is optimized with a thoroughly general 
primal simplex algorithm (29) that attempts to fulfill 
predetermined demand at the minimum system cost, given 
the arc constraints. 

A significant feature of the system is the ability to report 
material routing from original mining operation to final 
destinations of secondary product. Using the output from 
the thoroughly general network and given the arcs 
available, the network model system determines a feasible 
set of trade flow paths using a shortest path algorithm (30). 
The output of the path algorithm is sorted by destination 
and delivered-unit cost. This allows identification of the 
high-cost, or marginal, supplier of phosphoric acid in each 
region. The output is the basis for development of short- 
run supply curves for delivered secondary product, 



phosphoric acid, H 3 P0 4 . This capability is also used to 
predict shifts in trading patterns. 

The network supply model is designed as a static opti- 
mization problem. That is, it solves a single year at a time. 
For multiyear analysis, the network can be solved serially 
with appropriate production and equilibrium price infor- 
mation passed forward from year to year. To the degree that 
time becomes a more important factor than short-run 
variable cost, a dynamic, or time-differentiated, optimiza- 
tion method (31) would be more appropriate. 

An important issue that should be considered is the 
choice of decision criteria. While there is nothing inherently 
wrong with selecting a decision criterion that emphasizes 
producing output with the minimum use of inputs (cost 
minimization), it is not the only valid criterion on which 
production decisions can be made. Other goals, such as the 
maintenance of market share, maximization of the life of 
the mine, or infrastructure development (in the case of 
government-owned properties) are sometimes pursued (32). 
However, it is extremely difficult to quantify noncost goals, 
which are often called satisficing goals (33). To the extent 
that goals other than cost minimization exist in any 
geographic region, they must be considered when the net- 
work solution is evaluated. 

A related consequence of the modeling method and the 
decision criterion selected is that market economic condi- 
tions are postulated. World regions dominated by MEC's 
are assumed to act in a rational economic manner, to make 
choices based on the desire to minimize opportunity cost; 
however, this is not necessarily the actual case. In those 
regions where price is not a major determining factor of the 
level of demand or where accurate cost information is 
unavailable, the solution to the model must be forced and 
is necessarily suspect. Therefore, short-run supply curves 
for certain regions (e.g., the U.S.S.R., East Europe) are not 
calculated. 

Another issue that should be addressed concerns the 
transportation algorithm solution. A feasible, optimal set 
of paths from source to sink can be determined, but not the 
single most optimal set of paths. As a result, it is useful 
to compare several transportation algorithm solutions when 
doing scenario analysis. While the set of paths will be 
similar in each solution, they will not be identical. The solu- 
tions indicate only what could happen, not absolutely what 
will happen. 

The final major issue related to the network supply 
system is the data requirements. Networks are extremely 
data intensive, both in terms of quality and quantity. 
Although the need for accurate data is not by definition a 
shortcoming, it may limit the number and type of mineral 
models developed. And if a model is to be of continuing use, 
the input data must be kept current. Conversely, improve- 
ments in collection and availability of data are often ob- 
served when the relevance of the model to decision making 
is demonstrated. 

Basic Network Design 

The phosphate network supply system has as its core 
a mathematical model of the world phosphate industry, the 
intrinsic design of which is introduced here. The selection 
of mining and milling properties, secondary processing 
plants, and ports for inclusion in the network will be dis- 
cussed, along with a description of how each is incorporated 
into the design. The base case for the network flow model 
attempts to incorporate the majority of known paths of 



62 



material flow for each active phosphate property in the 
world as of 1984. Background information for design of the 
network was found in Bureau deposit reports, trade journal 
and magazine articles, published trading statistics, and 
personal interviews with numerous industry and Bureau 
personnel. 

A full range of mineral facilities are represented in- 
dividually as discrete nodes for each property in the network 
flow model. These include mines, beneficiation plants, 
calciners, wet-process acidulation plants, ports, and other 
transportation depots. Arcs that connect the nodes represent 
the opportunity for processing or flow of material. A con- 
tinuous set of arcs from source of supply (a mine or inven- 
tory stockpile) to final demand (a regional phosphate rock, 
phosphoric acid, or inventory demand node) is referred to 
as a "path." Units of flow throughout the network are con- 
sistently metric tons of contained phosphorus pentoxide 
(P 2 5 ); however, flow of P 2 5 in phosphate rock and P 2 5 
in phosphoric acid are never represented by the same arc. 
Rather, they are separated into distinct flows on distinct 
arcs. As a result, there could be two arcs connecting the 
same pair of ports, one for phosphate rock flow and one for 
phosphoric acid flow. 

The network has been designed in blocks, each of which 
comprises the operations of a specific company or country. 
A hypothetical network block is shown in figure E-4. Several 
of the locations are shown as numbered circles to facilitate 



understanding the flows. Properties or countries are further 
grouped in regional blocks, with the regions interconnected 
to replicate international trade routes. Phosphate rock and 
phosphoric acid production can fulfill demand either intra- 
regionally or in any region with which there are trading 
connections. 

Phosphate mining properties included in the model were 
selected from the Minerals Availability Program data base 
using the following criteria (in addition to the property- 
selection criteria outlined in the availability methodology 
section in appendix D.). 

1. Include all significant phosphate properties in MEC's 
that are supplying ore to the fertilizer market and are or 
have been producing in the last 5 yr (unless resources were 
depleted by 1984). 

2. Include all significant phosphate properties in MEC's 
that are currently developing or are expected to be 
developed within the next 20 yr. 

3. Exclude properties in CPEC's, owing to lack of ade- 
quate data. 

4. Exclude byproduct production from iron mines. 

5. Exclude production from extremely small mines and 
deposits. 

6. Exclude depleted properties shipping material from 
stockpiles. 

Data on domestic and foreign properties include infor- 
mation on the mine (or mines) at each property, the 



>% 
c 
o 

Q. 

E 
o 
o 



00 

>> 

c 
o 

Q. 

E 
o 
o 



cy-o 



o— o 



o— o 



a 
o 
o. 

E 
o 
o 




OO 



o— o 



Mine or Mill in 
inventory 



Mill out Company Inventory 
pool 



Acid in 



Acid out 



Demand by 
type 



FIGURE E-4. — Sample network schematic. 



63 



associated mills, and ports fed by each mine. Node names 
were assigned to each process step or location. A strict nam- 
ing convention has been followed to ensure consistency and 
identifiability. Node names are 16 characters long. The first 
12 characters are taken from the property or location name 
utilizing a phonetic word-condensing algorithm. The last 
four characters are a suffix used to identify the process or 
product associated with the node. Table E-l lists the various 
suffix types. For example, the node name for the entrance 
(or feed point) to Moroccan phosphoric acid plant Maroc 
Chemie I is "MAROC CHEM I AI". 

Table E-1 .—Node process and product identifiers 

Suffix Meaning 

ACD Phosphoric acid. 

AI Acid plant entrance. 

AO Acid plant exit. 

CALO Calciner exit. 

D Demand. 

DRY Dried phosphate rock 

INV Inventory. 

RK Phosphate rock. 

ML Mill entrance. 

MLO Mill exit. 

MN Mine entrance. 

MNO Mine exit. 

POOL Country or company pool 

WET Wet phosphate rock. 



Node and Arc Layout 

Nodes are connected by arcs, each representing the 
opportunity for processing or transportation (illustrated in 
figure E-4). For example, an arc connecting an "AI" node 
to an "AO" node would represent a wet-process phosphoric 
acid plant. An arc connecting an "RK" node to another 
"RK" node would represent a transportation link. These 
paths of potential flow are constructed from the mine to each 
successive destination, including all alternative destina- 
tions. If output from a mine can be shipped to any of three 
different calciners, arcs will be constructed to all three. 
Similarly, if several mines ship ore to a specific mill, arcs 
will be constructed from all the mines to that mill even if 
the production from any one would be adequate to run the 
mill at capacity. As an example: phosphate rock output from 
the Big Four (AMAX) mill flowed to two phosphoric acid 
plants, Piney Point (AMAX) and Plant City (Central 
Farmers). Arcs were therefore constructed from Big Four 
to those plants. 

Active mines are viewed as the main potential source 
of supply, with previous-period inventories of phosphate 
rock the secondary source. Each mine is represented 
separately in the model. Inventories are aggregated at the 
company level in the United States but are not further dif- 
ferentiated by grade or origin as these statistics are not fully 
reported to the Bureau. As a result, a company that operates 
three mines and probably has at least three distinct 
stockpiles (if not more) will be described as having only one 
stockpile. Phosphate rock inventories outside the United 
States are reported by the International Fertilizer Industry 
Association (IFA) for seven countries. Although there are 
undoubtedly numerous other stockpiles in the world, only 
those for which there are reasonably reliable statistics are 
included in the model. 

Each of eight world regions is presumed to have some 
demand for phosphate rock for use in animal feeds, 
detergents, or as direct-application fertilizer, and for 
phosphoric acid, which is used as a proxy for all phosphate 
fertilizers. In addition, certain individual companies and 



countries are assigned demand nodes for end-of-period 
phosphate rock inventories. 

Mills, calciners, ports, etc. are viewed as transshipment 
points. They do not supply phosphate to the system, nor do 
they demand phosphate for final use. The model does not 
currently address the possibility that inventories of ore, 
phosphate rock, or partially beneficiated product might be 
stored at any or all locations. 

In some instances, mill or calciner output and previous- 
period inventories are directed to a company or country 
phosphate rock pool, a feature incorporated into the net- 
work to facilitate design rather than to suggest that all 
production of a corporate entity is physically collected at 
a single location. The phosphate rock pool (or mill if no pool 
is associated with the producer) is subsequently linked to 
neighboring phosphoric acid plants. Connections are also 
available from the pool or mill to one of three destinations: 
(1) end-of-period regional or company inventory demand, (2) 
regional phosphate rock demand, or (3) a local port. In coun- 
tries with more than one producing property (and without 
an artificial phosphate rock pool node), all phosphate rock 
output is directed to a single port. From there, regional 
inventory or phosphate rock demand nodes as well as non- 
adjacent phosphoric acid plants are reached. The purpose 
of these design features is to facilitate identification of 
individual country flows and thereby assist the analyst 
using the network flow model. 

Wet-process phosphoric acid plants included in the 
model were selected from a list provided by the IFA (22). 
The selection criteria were as follows: 

1. Include all plants currently operating. 

2. Include all plants operating or idle in 1984. 

3. Include all plants expected to open within the next 
10 yr. 

4. Include plants in non-MEC regions at zero cost, to 
the degree that reliable capacity data are available. 

Phosphoric acid plants are fed either by locally produced 
phosphate rock or by imported phosphate rock. Many coun- 
tries that do not mine phosphate rock do process phosphate 
rock into phosphoric acid. These phosphoric acid plants are 
included in the model, and all phosphate rock imported as 
feed to a specific plant or plants flows through the same 
central port. For example, the United Kingdom has six 
phosphoric acid plants but mines no phosphates. Phosphate 
rock for use in these plants is necessarily imported. Arcs 
have been placed in the network linking the port for each 
actual or potential exporter to Liverpool, the port selected 
for Great Britain (other ports in Great Britain may actually 
have phosphate rock import flow, but Liverpool was selected 
as the only one for the network for simplicity.) From Liver- 
pool, arcs are included to each of the phosphoric acid plants. 
Some countries both mine and import phosphate rock. In 
such instances, the network is designed to allow the 
phosphoric acid plant to accept feed either from local mills 
or from the port through which phosphate rock imports flow. 

Output from a phosphoric acid plant can flow to two 
possible locations: to a port for export or to the regional 
phosphoric acid demand node. In instances where several 
plants are producing in the same country, the output from 
them all is directed to a single port. From there, material 
can go to either regional demand or export markets. Again, 
the reason for this arrangement is so that the analyst using 
the network can more easily interpret the solution flows. 
Appendix B lists all phosphoric acid plants included in the 
model as well as several that were excluded for specific 
reasons. 



64 



Ports and railheads were chosen to reflect actual ship- 
ping locations to as large an extent as was feasible; however, 
major ports were selected to represent many smaller sur- 
rounding ports to limit the number of nodes and arcs in the 
model. Most countries were assigned a single port location; 
a few, such as the United States, were allowed more than 
one port. Ports are differentiated by type of phosphate prod- 
uct, so a single physical location could appear twice in the 
model, once as a transshipment point for phosphate rock 
and again as a transshipment point for acid. Ports are linked 
to other ports in a design that replicates reported or 
assumed trading patterns. Not every exporter is linked to 
every importer. Further, exporters serving importing coun- 
tries with more than one port listed in the model will be 
linked to only one of those ports. This is done for two 
reasons. First, it facilitates control of intercountry flows. 
Second, the network solution algorithm will always choose 
the cheapest path available, making the alternative paths 
superfluous. 

Information on trading has been gleaned from trade 
journals, the Bureau's 1984 Minerals Yearbook (7), and 
various IFA publications (12-14, 21-22). In addition, 
transportation data was acquired from numerous issues of 
"Phosphorus and Potassium" 2 and "Industrial Minerals," 3 
and "Distances Between Ports" (34). 

To recapitulate, the model can be thought of as a set 
of demands for phosphate rock, phosphoric acid, and 
phosphate rock inventory that can be filled from any one 
or several of the many supply locations around the world. 
The ability of any region to supply product to another is 
limited by accessibility, reserves, capacity, cost, and political 
considerations. The first and last of these constraints are 
design issues. The remaining three are addressed in the 
following section on constraint values. 

Network Constraints 

As previously stated, nodes are connected by arcs that 
represent the opportunity for material flow. Viewing the 
network in the context of LP, arcs represent variables and 
nodes correspond to constraints. The ability to represent 
network problems as arcs and nodes results from the 
characteristic that each ordinary variable (arc) has exactly 
two coefficients (multipliers) and so appears in two con- 
straints (29). One coefficient is associated with the tail node 
and another with the head node of each arc. They are used 
to augment or diminish flow over the arc and to control the 
direction of flow. 

Node Constraints 

Nodes represent constraints due to the principle of con- 
servation of flow; flow into a node always equals flow out 
of a node (35). A single constraint equation incorporates all 
flows associated with a given node. The variables on the 
left-hand side (LHS) represent the individual arcs feeding 
into or flowing out of the node. The constant on the right- 
hand side (RHS) reflects the resource limitation imposed 
on the node. The coefficients attendant on each variable in 
this equation are positive if the arc enters the node and 
negative if it leaves the node. These are the structural con- 
straints, which are linear and normally expressed as 
equalities. 

If flow is conserved over the arc (all flow leaving the 



tail node reaches the head node), the head node has a coef- 
ficient equal to 1 and the tail node has a coefficient equaling 
— 1. However, certain head node multipliers in the network 
flow model are assigned positive values less than 1. The 
value assigned arises from the fact that mineral recovery 
systems always have a degree of process loss. Some percent- 
age of the total ore body is left in the ground; ore falls off 
the conveyor belt; flotation recovers most but not all of the 
contained mineral. In each of these instances, the amount 
of flow entering the process is more than the amount leaving 
the process. The amount of flow reported as available to the 
next downstream facility should be the actual amount 
recovered from the process, not the total available before 
process losses are taken into account. The head node 
multiplier can be used to represent these losses quite 
realistically. 

Consider mill recovery as an example. Some total ton- 
nage of mineral contained in ore is fed into the mill and 
processed. The milling cost per ton should apply to the total 
feed, but less than this amount will be recovered. By assign- 
ing a multiplier equal to mill recovery to the head node of 
the arc representing milling, flow out of the arc can be 
decreased to the appropriate level. Each process arc in the 
network flow model has multipliers assigned in this man- 
ner. In the case of wet-process acidulation, the multiplier 
associated with all plants in the model is 0.87. This value 
was chosen as representative of the average level of recovery 
associated with the production of phosphatic fertilizers. 

The nodes associated with inventory stockpiles have 
negative external flow; i.e., the RHS of the constraint 
associated with an inventory supply node has a value less 
than zero because flow equal to the RHS is entering the 
system. The assigned value equals ending inventories in 
the previous time period. As this is a fixed rather than 
variable value, the constraint is an equality. 

Actual end-of-period phosphate rock inventory is 
reported by U.S. producers to the Bureau of Mines and is 
published by IFA (36-37) for some foreign producers. In the 
1984 simulation, inventory demand is set to these reported 
values. The constraint is written as an equality, with the 
RHS a positive number. 

The model can be used to project changes in inventory 
levels, given specified levels of phosphate rock and 
phosphoric acid demand. This is accomplished by forcing 
production at mining properties and changing the inventory 
demand constraints to inequalities. Inventory demand no 
longer equals a set value but rather is less than or equal 
to a very large number. If production exceeds demand, 
inventories will increase in less cost-competitive regions. 

The constraint equations for mining nodes are written 
as inequalities since the mine can supply P 2 5 at a rate 
equal to its annual capacity or at some lesser rate; i.e., 
supply from mines is variable rather than fixed. The RHS 
of the equation is equal to the total economic reserves of 
the mine. This number is calculated in the following 



manner: 



TER = (RES • MR • 1/U-DIL)) • GR, 



2 British Sulphur Corp. Ltd., London, England. 

3 Metal Bulletin Journals Ltd., London, England. 



where TER = total economic reserves; 
RES = in situ resource; 

MR = mine recovery factor; 

DIL = dilution factor; 
and GR = average ore grade. 

Inequality constraints that are written as "less than or 
equal to" are converted to equalities through the use of 
slack variables. In networks, slack variables are called slack 



65 



arcs and represent unused resources when the RHS cons- 
tant represents available resources. Slack variables do not 
appear in the objective function since they contribute 
nothing to the optimal solution criterion. Slack arcs appear 
in only one constraint equation as the tail and head nodes 
of the arc are identical. On a slack arc, the multiplier 
associated with the tail node is +1 and with the head 
node, 0. 

Demand levels are assumed fixed for any single year 
and are handled in the model as equality constraints with 
positive RHS values because flow is leaving the system. 
Values were calculated for the base year from references 
12, 14, and 21. 

On the basis of numbers reported in these publications, 
a world balance of P 2 5 was calculated for 1984. Demand 
levels for phosphate as rock, as fertilizer, and as rock for 
inventories were set at quantities calculated via a world 
material balance. The basic form of the calculation is shown 
below. Positive values indicate additions to the system or 
supplies; negative values are removals from the system or 
demand levels. All quantities are in metric tons of contained 
P 2 5 and represent 1984 values. 

Rock production 
+ Beginning inventories 
+ Rock imports 



Available rock 

— Ending inventories 

— Nonfertilizer consumption 

Rock for acid 

— 13.1 pet production loss 

Available acid 
+ Imported acid 

— Exported acid 

— Domestic acid consumption 

Other disappearances 

This calculation was completed separately for each of 
the eight world regions in the network flow model, and 
demand levels were determined from the results. Demand 
for phosphate as fertilizer was set equal to domestic fer- 
tilizer consumption as reported by IFA (21). Demand for 
phosphate rock was set equal to nonfertilizer consumption 
plus "Other disappearances." The beginning and ending 
inventory values were those reported to IFA (36-37) and the 
Bureau (7). One final adjustment was made to the initial 
numbers. In those regions where direct application of 
phosphate rock is prevalent, a percentage of phosphate-as- 
fertilizer demand was shifted to phosphate rock demand. 
Estimates of direct-application levels were provided by EFA 
(21). Demand values are reported in table E-2. 

The residual value in the calculation "Other disap- 
pearances" deserves some comment. All regions showed 
some level of other disappearances, ranging from less than 
1 pet in the United States to 20 pet for Eastern Europe. They 
can be accounted for in several ways. It is reasonable to 
assume that reporting standards are not uniform worldwide. 
This could result in misinterpretation of some numbers or 
an outright lack of information. Also, IFA reports an 
average phosphate rock grade for each country but builds 
its phosphate rock statistics tables on metric tons of 
phosphate rock shipments. To the degree that phosphate 
rock grade differs from the reported average, the material 
balance will be biased toward underreportage or overreport- 
age of production and shipments. Finally, there is the issue 
of material handling losses. These are extremely difficult 



to quantify on a country-by-country basis and, as a result, 
are not directly accounted for in the model. 

Table E-2. — Demand values used in network flow model 
simulation for 1984 

Demand node Quantity, mt P 2 5 

Africa ACD 928,400 

Africa RK 266,500 

Algeria INV 23,332 

Asia ACD 7,104,000 

Asia RK 1 ,704,877 

Canada ACD 777,679 

Canada RK 281 ,699 

Eastern Europe ACD 1 ,975,000 

Eastern Europe RK 1,160,000 

Egypt INV 54,500 

Israel INV 61,438 

Morocco INV 1 ,835,430 

Senegal INV 201 ,913 

South Africa INV 410,642 

South America ACD 1 ,751 ,000 

South America RK 490,000 

Togo INV 30,492 

Tunisia INV 309,170 

U.S.S.R. ACD 5,900,000 

U.S.S.R. RK 1,250,000 

United States ACD 4,066,543 

United States INV 3,330,488 

United States RK 1 ,320,294 

Western Europe ACD 5,217,500 

Western Europe RK 1 ,960,000 

A base year network solution should reflect actual in- 
dustry actions as accurately as possible so that it can serve 
as a point of comparison for sensitivity analysis. For that 
reason, IFA numbers rather than values predicted by de- 
mand equations were used. In subsequent simulations, total 
regional phosphoric acid demand would be a number 
predicted by an appropriate regional demand equation. 

Finally, the RHS value for the constraints associated 
with transshipment nodes is zero as no flow enters the 
system or leaves the system at the node. 

Capacity Constraints 

In addition to node constraints, variables in the network 
flow model have capacity constraints. Each variable (arc) 
has an associated upper bound and lower bound. The upper 
bound represents the maximum allowable single-period flow 
over the arc in terms of metric tons of contained P 2 5 . The 
lower bound represents the minimum required single-period 
flow. Because the problem is solved with a primal-simplex- 
type algorithm, lower bounds are actually adjusted to zero 
during solution and then readjusted; however, this process 
is invisible to the user. 

Capacity constraints are written as two equations, one 
for the upper bound and one for the upper bound. For all 
arcs other than supply or demand arcs, flow is less than or 
equal to the upper bound and greater than or equal to the 
lower bound. Table E-3 delineates upper and lower bound 
decision criteria by arc type. 

The bounds on slack variables are handled in a slightly 
different manner. The upper bound on slack arcs associated 
with active mines is set at total economic reserves for the 
life of the mine. The only other arc connected to the min- 
ing node is the mining process arc, which has an upper 
bound equal to annual mine capacity in terms of P 2 5 . The 
slack arc permits supply to vary from zero to the upper 
bound of the mining process arc. The slack arc is constrained 
by total reserves rather than annual reserves to facilitate 
multiyear simulations, an issue discussed later. Initially, 
slack arcs associated with nonproducing mine nodes are 
assigned an upper bound value of zero. When the mines are 
redefined as producers, the upper bound is reset to total 



66 



Table E-3.— Arc bound criteria 

(Ordinary variables) 



Arc activity Upper bound 

Mining Annual mine capacity 

in metric tons of 
contained P 2 5 . 

Milling Annual mill capacity in 

metric tons of con- 
tained P2O5. 

Acidulation Annual acid plant 

capacity in metric 
tons of P20 5 . 



Lower bound 



Zero unless set equal 
to known contractual 
obligations. 

Do. 



Do. 



Transportation from 
mill or acid plant to 
port or pool. 

Transportation port to 
port. 



Transportation port to 
acid plant. 



Port or pool to regional 
demand node. 



Annual plant capacity 
in metric tons of 
P 2 5 . 

Arbitrary large number 
unless set equal to 
reported trading 
levels in metric tons 
of P2O5. 

Annual acid plant 
capacity in metric 
tons of P 2 5 . 

Total annual capacity 
of plants feeding port 
or pool unless set 
equal to reported 
consumption levels. 



Zero. 



Do. 



Do. 



Zero unless set equal 
to reported 
consumption. 



economic reserves. 

The capacity constraints for supply ordinary arcs, which 
are equalities, are written as— flow is less than or equal to 
minus a constant and flow is greater than or equal to minus 
a constant, where the constant is available supply. Supply 
slack arcs are inequalities, the capacity constraint equa- 
tions for which are written as— flow is less than or equal 
to minus the lower bound and flow is greater than or equal 
to minus the upper bound. Demand ordinary and slack arc 
equations are written similarly except that the RHS is a 
positive value. 

Arc Costs 

Associated with each arc is a number that represents 
the average variable cost of moving one unit of contained 
P 2 5 over the arc. Variable costs are assumed equal to 
marginal costs for reasons discussed in detail below. For 
mining and milling, costs in January 1985 U.S. dollars are 
updated values from the data base developed for the 
availability portion of the report. Operating cost categories 
included in variable cost for mining and milling are- 
Supervisory labor, 

Skilled labor, 

Unskilled labor, 

Electric power, 

Fuel (diesel, gas, etc.), 

Supplies (nonenergy), 

Equipment repair parts, 

Administration and general overhead, 

Severance taxes, 

Royalties. 

These costs are used in the model after correction to 
reflect level of contained P 2 5 . Operating cost is divided by 
average feed grade for the simulation year. The general 
equation for mining cost is shown below. Milling costs are 
developed in a similar manner. 



Mine operating cost per metric ton ore 
percentage P 2 5 in ore 

= arc cost per metric ton P 2 5 . 

Short-run average variable cost (SAVC) is normally 
described as a parabola. The validity of this assumption for 
the mineral industry is worth considering. The U-shaped 
SAVC curve demonstrates a single minimum cost point 
often referred to as "capacity." However, plants are actually 
designed with reserve capacity above average production 
to allow the firm to respond to seasonal changes in demand 
(38). Over this reserve capacity, short-run marginal cost 
(SMC) equals SAVC and both are at a constant level per 
unit of production. To the left, SAVC is decreasing as quan- 
tity increases, reflecting underutilization of the fixed capital 
and increasing marginal physical product (MPP) of variable 
factors. To the right, SAVC and SMC are rising, reflecting 
decreasing MPP brought on by overutilization of capital 
(which increases breakdowns and therefore raises main- 
tenance costs) and overworked labor (39). 

Suggesting a single minimum cost point also ignores 
the fact that production is a flow over time. If the costs of 
shutdown and subsequent startup are not significant, then 
output becomes a function of operation time as well as 
operation rate. Given that the plant operates within its 
rated capacity range if it operates at all, the SAVC and SMC 
for each unit of production would be constant. Total costs 
would be represented over this range by a straight line with 
a positive slope. Production below and above capacity would 
result in higher costs because of changing marginal pro- 
ductivity. In this case the SAVC curve is better described 
by a truncated parabola as previously shown in figure E-2. 

The phosphate industry is an illustrative example. 
Wash plants, mills, and beneficiation plants are almost 
never run at rates far less than capacity. Normally, when 
plants are in operation, they run 24 h per day, 7 days per 
week. To limit production, phosphate mining companies 
reduce the total number of running days per year. The 
plants may run full time for 8 or 10 months and then shut 
down for the remainder of the year. Alternatively, they may 
be operated full time for 10 days, then shut down for 4 days. 
This 10-on, 4-off schedule can continue for all or part of the 
year (1) and is presently being utilized by various Florida 
producers. In combination with total shutdown, the on-off 
schedule makes possible enormous flexibility in annual out- 
put at constant average variable and marginal cost. The 
result is that average variable cost for mines and beneficia- 
tion plants can be used as a proxy for marginal cost. This 
is an important point as the supply curve for each firm is, 
by definition, marginal cost at or above the minimum 
average variable cost. 

U.S. transportation costs are based on rail and barge 
rates reported to the Bureau by individual phosphate pro- 
ducers. Costs are corrected to reflect both contained P 2 5 
in either phosphate rock or phosphoric acid as necessary, 
and where appropriate, a distinction is made between wet 
and dry rock haulage costs. Costs for international ocean 
transport of phosphates have been derived from freight rates 
published in various issues of "Phosphorus and Potassium" 
and "Industrial Minerals." All internationally transported 
phosphate rock is assumed to be dried. A total of 470 data 
points were collected. The functional form of the relation- 
ship is described as 

rate = r(distance, intensity of use, passage through 
canals). 



67 



These were transformed to the log form: 

log rate = f[log distance, index of shipping, binary 1, 
binary 2]. 

Distance between ports in nautical miles was found in 
a publication of the Defense Mapping Agency (34). (Spell- 
ings of ports in the network flow model conform to spell- 
ings in this publication.) The index of shipping is published 
by Chartering Annual (40) and comprises a weighted 
average of costs over different routes for different com- 
modities. The index of shipping is a measure of relative ship- 
ping activity worldwide. As such, it is a useful proxy for 
demand-influenced changes in shipping rates. The binary 
variables represent the two major canals, Suez and Panama. 
Binary 1 variable is 1 if the shipping route requires passage 
through the Suez Canal and otherwise. Binary 2 variable 
represents the Panama Canal in a similar manner. The or- 
dinary least squares regression is as follows: 

log rate = -1.998 + 0.469 log distance 
(-7.185) (13.874) 

+ 0.003 ship index + 0.333 binary 1 
(14.292) (12.307) 

+ 0.281 binary 2 
(5.722) 

R 2 = 0.8187 

F-statistic = 525.959. 

(T-statistics are shown in parentheses below each 

coefficient.) 

Costs of acidulation are derived with variable costs in 
1981 dollars for phosphoric acid plants worldwide. These 
costs were updated to January 1985 dollars using the 
Bureau's international mining cost indexation system. 
These variable costs are reported in terms of metric tons 
of P 2 5 processed and are summed to obtain unit cost per 
ton of contained P 2 5 in wet-process phosphoric acid. 

Previous years' inventories were judged to be costless 
as they reflect previous years' expenditures and are thus 
sunk costs. No holding costs for inventories are included 
for two reasons. First, most phosphate companies simply 
store phosphate rock in piles exposed to the elements, which 
is not a costly endeavor. Second, any holding costs that are 
incurred are not reported, and as a result, defensible 
estimates are unavailable. 

Solution Algorithms, Output, and Interpretation 

A network flow model is a constrained optimization that 
can be described as fulfilling demand while minimizing the 
per-unit cost times units of flow over all arcs without 
violating the node and arc constraints placed on the system. 

This problem is solved via a thoroughly generalized net- 
work algorithm (GN2MD) that utilizes a phase I-phase II 
start and progresses toward optimality in the following 
manner. Imaginary arcs (artificial variables) are introduced 
and form the basis for an initial feasible solution. During 
phase I, cost is set to zero on all real variables and a cost 
of 1 is assigned to imaginary variables. Using the primal 
simplex method, real variables are found to accept the flow 
from the starting imaginary variables. As flow on an arti- 
ficial variable falls to zero, that variable is removed from 
the problem. When all flows have been shifted to real 
variables, phase I is complete; i.e., there is a set of flows 
entirely on real variables. This represents a feasible, albeit 
a nonoptimal solution. At the start of phase II, actual costs 



are restored to the real variables. The primal simplex 
method is again applied to find better (lower cost) flows. 
When no more flow can be shifted to alternative lower cost 
arcs, an optimal solution has been found. The solution 
fulfills technical efficiency since the technical limitations 
of the market (constraints) are observed, and it fulfills 
economic efficiency because output is supplied at the lowest 
system cost. 

The code utilized by the model is extremely streamlined, 
requiring significantly fewer iterations and calculations 
than previous generalized network codes. There are two im- 
portant benefits derived from this streamlining. First, the 
program runs faster. Second, fewer numerical operations 
mean increased numerical stability. 

The solution to GN2MD is provided in three parts: (1) 
the objective function value, (2) the optimal flows by arc, 
and (3) the "shadow price" associated with each constraint. 

The first of these is a single dollar value equaling the 
minimum total system cost required to fulfill predetermined 
demand. The optimal value for the 1984 base case is utilized 
as a point of reference. In subsequent runs of the model, 
the optimal value can be compared to the original base case 
value to determine, other things being equal, how a change 
to the network flow model would impact total cost. 

For the second, optimal-solution arc flows are defined 
as the predicted level of flow in metric tons of P 2 5 for each 
arc and are segregated into two types, nonbasic and basic. 
Arcs that have an optimal flow equal to either zero, the 
lower bound, or the upper bound are nonbasic arcs. Arcs 
with an optimal flow between zero and the upper bound are 
basic arcs. There is a maximum of one basic arc for each 
node. (These flows can be reported together or separately 
as desired.) 

It is important to keep in mind that the network flow 
model is solved with a cost-minimizing algorithm; hence, 
the simultaneous solution represents a systemwide cost 
minimization as opposed to cost minimization for any single 
property. Every individual flow is a function of the cost and 
constraints not only on that arc but also on all other arcs. 
The solution flows represent the optimal results if the 
economic world were "rational" and "efficient" and only 
cost-minimizing goals were taken into consideration. As a 
result, flows can be viewed in two different but interrelated 
contexts. The levels of flow into a single destination (head 
node) from several competing sources (tail nodes) are in- 
dicative of the relative competitive status of each of the sup- 
pliers into that market. Simultaneously, the levels of flow 
from a single source (tail node) to several destinations are 
indicative of the relative attractiveness of each of the alter- 
native markets. 

To compare the relative competitive position of several 
suppliers in a single market, it is necessary to compare the 
optimal flow on each incoming arc with the capacity con- 
straints on that arc. For example, if three arcs are directed 
into a single port, each corresponding to a different source 
country, it is possible to rank the three source countries in 
terms of relative competitiveness. If the optimal flow on one 
arc is at zero units, then that supplier is relatively less com- 
petitive than other possible suppliers. Conversely, if optimal 
flow on another of the arcs is at the upper bound, then that 
supplier is relatively more competitive than suppliers whose 
optimal flow is not at the upper bound constraint. Suppliers 
for whom the optimal solution is between the upper and 
lower bound have an intermediate competitive position, 
above those suppliers with flow at zero and below those with 
flow at the upper bound. 



68 



These results can be explained in terms of economic ef- 
ficiency, but to do so requires the use of the third part of 
the solution, the shadow prices. Each node in the network 
is assigned a shadow price "pi" (or node potential) as part 
of the optimal solution. Pi represents the value to the system 
of a unit of flow added to the network at that node. In other 
words, pi represents the amount by which the objective func- 
tion value would change if the RHS value of a node con- 
straint were increased by 1 unit. 

Once the shadow price at each node has been deter- 
mined, the rules of complementary slackness are used to 
identify which arcs should have increased flow (41). Where 
cost minimization is the objective, c- is the cost on arc ij, 
m ; is the arc multiplier at node i (or G matrix coefficient 
for arc constraint i), and m- is the arc multiplier at node 
j, the complementary slackness rules are 

1. If Cj: is less than pijinj + pi;m, it is profitable for arc 
ij to increase its flow, and in fact, the unit increase in profit- 
ability or marginal profit is pijinj + pi m- - Cj-. 

2. If c- equals pijinj + pirn., increase or decrease of flow 
on arc ij does not effect the oTbjective function value. 

3. If c- is greater than pijHij + pim, it is profitable to 
decrease flow on arc ij. 

The rules of complementary slackness state that if the 
increase in value of a unit of flow as a result of moving from 
the tail to the head node is greater than the cost of doing 
so, then it is economically efficient to do so. Conversely, if 
the increase in value of a unit of flow as a result of moving 
from the tail node to the head node is less than the cost of 
doing so, no units should be moved. A supplier can be con- 
sidered relatively more competitive in a specific market to 
the degree that flow from that source is economically effi- 
cient compared to flow from other suppliers. (As stated 
previously, the model assumes rational cost-minimizing 
economic behavior.) 

Consider an arc with optimal flow at the upper bound. 
Flow has been set to the upper bound because it is efficient 
to do so; i.e., the difference in shadow price at the head node 
versus the tail node is greater than the unit cost associated 
with the arc. If optimal flow is set at the lower bound, then 
the marginal arc cost is greater than the potential increase 
in shadow price, so it would be inefficient to have flow on 
the arc. Flow would be greater than zero on such an arc 
only when the lower bound forces flow. If flow is between 
the lower and the upper bounds, cost equals the potential 
change in value and the model is indifferent as to level of 
flow. 

If multiple arcs are solving at the upper bound, suppliers 
can still be ranked by competitive position through the use 
of sensitivity analysis. Flow out of the head node represent- 
ing the market in question is incrementally reduced and 
the network flow model solved with GN2MD. As this pro- 
cess is repeated, the reduction in total flow out of the head 
node forces flow from the highest cost supplier to that node 
to be reduced to the lower bound. Eventually all suppliers 
but one have been reduced to the lower bound. Similarly, 
if several suppliers are shipping at the lower bound into 
a single node, their relative competitive status can be 
ranked by reversing this process. Flow through the head 
node can be increased and the model solved again until each 
of the nonshippers has been assigned flow. 

Transportation Algorithm Output and interpretation 

The initial optimal solution discussed above (as 
distinguished from sensitivity analyses) is used to develop 



regional short-run supply curves for delivered secondary 
product. A short-run industry supply curve is a schedule 
of the amount of product all firms are willing and able to 
offer for sale at each cost and is represented by the horizon- 
tal summation of the individual marginal cost curves for 
each firm. In this model, the quantity-marginal cost rela- 
tionship representing supply is derived by determining the 
marginal supplier to each region for a range of quantitiy 
levels. The marginal supplier will have an associated 
marginal cost per unit of delivered secondary product, which 
is the sum of the arc costs for all arcs in the path from mine 
to demand point. As was previously discussed, arc costs are 
considered marginal costs and so a sum of the arc costs over 
a path is identical to the marginal cost for a unit of delivered 
product. The marginal supplier is defined as that supplier 
with the highest marginal cost to a particular demand node. 
As such, it would be the first supplier to lose market share 
if demand were reduced. 

Because of the complexity of the network design, both 
in terms of number of nodes and direction of flow, it is im- 
possible to identify all the paths from mine to demand point 
by visual examination of the model. Rather, the marginal 
supplier is identified through the use of the transportation 
algorithm. This algorithm takes into consideration the com- 
binatorial complications arising from the nondiscrete nature 
of generalized network flows and is applied to the optimal 
data set from the generalized network solution. 

Paths are selected in the following manner, with the 
goal of identifying the alternative distribution paths com- 
patible with the least cost solution. That is, paths must use 
the optimal network solution. Arcs for which the optimal 
flow is zero are automatically excluded from the set of possi- 
ble arcs available to the transportation algorithm. The pro- 
gram then solves for the shortest path from every source 
to every destination. A simple first-in, first-out (FIFO) 
shortest path algorithm is used. (Approximately 10 pet of 
the nodes are sources and 3 pet destinations.) The program 
next selects the minimum, or shortest, path distance to each 
destination as calculated above and sends as much flow as 
possible (consistent with the optimal solution) along those 
paths, storing them in memory. Since the algorithm is work- 
ing only with optimal flows, sending all available flow is 
consistent with the optimal solution. The optimal flows are 
reduced by the path flow just recorded in memory. This pro- 
cess is repeated until there are no more flows left for which 
paths are needed. At this point the problem is finished. 

Paths are reported by region, by demand type, in order 
of increasing marginal cost. The most expensive path to 
each demand type in each region is flagged as a marginal 
path. The marginal cost on the marginal path is paired with 
the demand quantity for the associated demand node as the 
price-quantity coordinate. Output will be as follows: 

1. A list of all supply paths (s) for each D -, sorted in 
order of increasing MC ri for each year in the simulation; 

2. A list of the marginal paths for each D ri and the 
associated MC*, 

given i = 1, ... ,8 demand regions, 
j = 1,. . . ,m demand levels, 
r = 1,2 demand type, 

s = 0, . . . ,n supply paths, 
D = demand, 
MC = marginal cost, 
MC* = marginal cost on the marginal path. 

One output of the model is a graph of unit cost for 
delivered product versus cumulative quantity, for all paths 



69 



to a single destination (see the "Supply" section for ex- 
amples). A graph allows the user to visually compare the 
cost-quantity relationships for all suppliers to a single 
demand region. This is particularly useful in sensitivity 
analysis, allowing visual comparison of the cost of suppliers 
under differing scenarios. 

It is important to keep in mind that the transportation 
solution is guaranteed to be optimal but not to be uniquely 
optimal. By nature of the design of thoroughly general net- 
works, more than one optimum is possible. (Therefore, the 
marginal supplier should be viewed as a proxy for the ac- 
tual marginal supplier.) 

To develop the vector of price-quantity coordinates that 
will be used to represent supply, it is necessary to repeat 
the foregoing process of determining marginal suppliers by 
region for a series of different demand levels. These demand 
levels could be calculated from the demand equations for 
each region. For a given scenario, i.e., network design, all 
variables in the demand equation are fixed by the user, ex- 
cept for price and quantity. By varying price, a series of 
quantities can be calculated. This process is repeated for 
each of the eight demand regions, using the same set of 
prices. The result is an array of price-quantity coordinates 
for phosphate fertilizer demand in each of the regions. These 
quantity levels are substituted into the network design. For 
any single solution, all demand levels reflect the same 
hypothetical market price. 

Once a vector of price-quantity pairs representing sup- 
ply has been calculated for each region, these values are 
regressed to calculate the short-run supply curve for 
delivered secondary product. A robust regression that 
minimizes the absolute deviations is used rather than an 
ordinary least squares regression. The regression is for- 
mulated as a dual linear program, using an appropriate 
translation of the variables, to have a dual feasible start- 
ing basis. The final LP solution values can be recovered and 
translated to yield the parameters defining the robust 
regression equation. 

Multiyear Analysis 

The network flow model can be used for multiyear 
analysis. For future years, demand for phosphoric acid (as 
a proxy for fertilizer demand) can be set by the user or deter- 
mined via the demand equations. Demand for phosphate 
rock is set at a constant for any single simulation year. For 
forecasting, phosphate rock demand is prespecified or is in- 
creased each year by a percentage set by the user. In the 
base year, this demand has been calculated from informa- 
tion on usage published by IFA (21 ). Inventory demand in 
the base year is that reported by IFA and various U.S. 
manufacturers. For forecasting simulations, changes in in- 
ventory demand are set by the user. No demand equations 
have been developed for nonfertilizer or inventory demand, 
and no attempt has been made to create supply curves for 
those products. 

The previously mentioned regression equation repre- 
senting supply and the equation representing demand can 
be solved simultaneously to generate a short-run equi- 
librium price and quantity. This should not be viewed as 
a price forecast. Since the model is variable cost based, 
return to capital is not part of the solution value but would 
certainly impact pricing decisions. The equilibrium price 
and quantity values have several important uses. 
Equilibrium price values calculated in sensitivity analyses 
can be compared with base year values to give an indica- 



tion of possible relative movement of price with respect to 
market changes. The equilibrium values could also be used 
to select that generalized network solution for which de- 
mand levels are closest to equilibrium quantity. Once the 
appropriate solution is identified, production levels by prop- 
erty, relative competitive status into specific markets, and 
marginal suppliers could be identified and reported 
separately for each year in the analysis. 

The individual production levels identified through use 
of the current-year price-quantity equilibrium are used to 
reduce economic reserves of each property prior to the 
simulation of the next year of the multiyear analysis. As 
a property's economic reserves are reduced to zero, it no 
longer can supply the network. Exhaustion of reserves is 
modeled in this manner. 

Nonproducers are considered for reclassification as pro- 
ducers between each year of a multiyear run. The criteria 
for changing a property to producer status are listed below. 
A positive response to any one of the four would trigger the 
change. 

1. Reserves at another mine (specified by the user) are 
exhausted. 

2. Equilibrium price in the previous time period equals 
or exceeds a price specified by the user. 

3. Equilibrium quantity in the previous time period 
equals or exceeds a quantity specified by the user. 

4. The simulation year is a prespecified year. 

All nonproducing properties have default values for each 
of these criteria; however, each can be changed by the user. 
To bring properties into the simulation, the upper bound 
on the slack supply arc associated with that property's min- 
ing node is reset to equal economic reserves. This does not 
mean that, a property will automatically operate; the cost- 
minimizing algorithm chooses who will produce and at what 
level. Reclassifying a property merely provides the oppor- 
tunity to produce. 

Sensitivity to Data and Design 

It is important to reiterate that the network flow model 
is a cost-minimization model. As with all optimization 
models, it is only as reliable as the data inputs to the model. 
Further, it is more sensitive to some inputs than to others. 
This sensitivity will now be considered. 

Flow in the network flow model is designated as metric 
tons of contained P 2 5 . To reduce cost values to contained 
mineral, the operating costs are divided by the appropriate 
grade. Over arcs with process losses, cost is further divid- 
ed by the recovery factor. Consider the following path from 
mine to final demand node: 

Mine, mill, (RK) port of origin, (RK) destina- 
tion port, acid plant, (ACD) port of origin, 
(ACD) destination port, regional demand 
node. 
To calculate the cost over this path, mine operating cost 
plus mill operating cost are divided by mill recovery. (These 
costs have been divided by average grade before inclusion 
in the model.) The result is added to transportation costs 
and acidulation costs, and this new subtotal is divided by 
the phosphoric acid plant recovery factor. Finally, phos- 
phoric acid transportation cost is added to obtain the final 
path cost. By definition, costs are directly impacted by the 
ore grade and by the recovery factors used in the model. 
This seems appropriate for an engineering-based model. It 
allows an enormous amount of flexibility in testing the ef- 
fects of alternative engineering parameters. 



70 



However, the impact of inaccurate grade or recovery fac- 
tor selection may be emphasized in the results. Consider, 
for example, a mine with a reported average ore grade of 
22 pet P 2 5 , and a mill recovery factor of 0.70. Assume that 
the mine operating cost to be used in the network is $30/mt. 
If ore grade were 10 pet higher (or 24.2 pet), mine operating 
cost would be $27/mt or approximately 10 pet lower. 
Similarly, a 10 pet change in recovery factor, from 0.70 to 
0.77, would reduce mine and mill costs by 10 pet. A 10-pct 
decrease in either the ore grade or the recovery factor would 
increase operating cost by 10 pet (to $33/mt). 

If this 10-pct reduction (or increase) in cost were to make 
the mine and mill less (more) expensive than the next best 
alternative path available in the network (other things be- 
ing equal), relative production levels in the optimal solu- 
tion would change. The point is that cost changes are im- 
portant in relation to other costs. If all costs were increased 
by 10 pet, the optimal arc flows would not change. Only the 
objective function value and total unit costs would change. 

The impact of cost changes is also a function of the 
percentage of total path cost that a single arc represents. 



For example, costs on acidulation arcs are high relative to 
costs on mine and mill arcs. A 10-pct change in the cost of 
such an arc, which by itself represents up to 30 pet of the 
cost of a single path, will be more likely to cause a change 
in the optimal solution than will a 10-pct change in an arc 
representing a smaller percentage of the total path cost. As 
a result, the model is particularly sensitive to changes in 
transportation costs and acidulation costs, as well as 
average grade and recovery factors. 

The model is also sensitive to constraints. As previously 
discussed, part of the optimal solution is the shadow price 
of the constraint. If the shadow price is positive, the objec- 
tive function value would be increased by increasing flow 
at the node. If the shadow price is negative, objective func- 
tion value would be decreased by increasing flow. Since the 
objective is to minimize cost, flow should be increased at 
those nodes with a negative shadow price as long as the cost 
of increasing the flow is less than the shadow price. A 
change in such a node constraint will alter the optimal 
solution. 



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BINDERY INC. |M| 

#SEP 89 
N. MANCHESTER, 
INDIANA 46962 



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